- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
--------------
Commission File Number 1-3880
-----------------------------
NATIONAL FUEL GAS COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 13-1086010
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Lafayette Square
Buffalo, New York 14203
------------------ -----
(Address of principal executive offices) (Zip Code)
(716) 857-6980
--------------
(Registrant's telephone number, including area code)
----------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
-------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common stock, $1 par value, outstanding at April 30, 2000:
39,163,991 shares.
- --------------------------------------------------------------------------------
<PAGE>
Company or Group of Companies for which Report is Filed:
- --------------------------------------------------------
NATIONAL FUEL GAS COMPANY (Company or Registrant)
DIRECT SUBSIDIARIES: National Fuel Gas Distribution Corporation (Distribution
Corporation)
National Fuel Gas Supply Corporation (Supply Corporation)
Seneca Resources Corporation (Seneca)
Highland Land & Minerals, Inc. (Highland)
Leidy Hub, Inc. (Leidy Hub)
Data-Track Account Services, Inc. (Data-Track)
National Fuel Resources, Inc. (NFR)
Horizon Energy Development, Inc. (Horizon)
Upstate Energy, Inc. (Upstate)
NFR Power, Inc. (NFR Power)
Niagara Independence Marketing Company (NIM)
Seneca Independence Pipeline Company (SIP)
INDEX
Part I. Financial Information Page
----------------------------- ----
Item 1. Financial Statements
a. Consolidated Statements of Income and
Earnings Reinvested in the
Business - Three and Six Months
Ended March 31, 2000 and 1999 4 - 5
b. Consolidated Balance Sheets - March 31, 2000
and September 30, 1999 6 - 7
c. Consolidated Statement of Cash Flows - Six Months
Ended March 31, 2000 and 1999 8
d. Consolidated Statement of Comprehensive
Income - Three and Six Months Ended
March 31, 2000 and 1999 9
e. Notes to Consolidated Financial Statements 10 - 16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17 - 35
Item 3. Quantitative and Qualitative Disclosures About Market Risk 35
Part II. Other Information
--------------------------
Item 1. Legal Proceedings 35
Item 2. Changes in Securities 35
Item 3. Defaults Upon Senior Securities o
Item 4. Submission of Matters to a Vote of Security Holders 36
Item 5. Other Information 36
Item 6. Exhibits and Reports on Form 8-K 37
Signature 38
o The Company has nothing to report under this item.
<PAGE>
Reference to the "Company" in this report means the Registrant or the Registrant
and its subsidiaries collectively, as appropriate in the context of the
disclosure. All references to a certain year in this report are to the Company's
fiscal year ended September 30 of that year, unless otherwise noted.
This Form 10-Q contains "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
should be read with the cautionary statements and important factors included in
this Form 10-Q at Item 2 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" (MD&A), under the heading "Safe Harbor for
Forward-Looking Statements." Forward-looking statements are all statements other
than statements of historical fact, including, without limitation, those
statements that are designated with a "*" following the statement, as well as
those statements that are identified by the use of the words "anticipates,"
"estimates," "expects," "intends," "plans," "predicts," "projects," and similar
expressions.
<PAGE>
Part I. Financial Information
- ------------------------------
Item 1. Financial Statements
--------------------
<TABLE>
<CAPTION>
National Fuel Gas Company
-------------------------
Consolidated Statements of Income and Earnings
----------------------------------------------
Reinvested in the Business
--------------------------
(Unaudited)
-----------
Three Months Ended
March 31,
(Dollars in Thousands, Except Per Common Share Amounts) 2000 1999
----------------- -----------------
<S> <C> <C>
INCOME
Operating Revenues $517,810 $483,404
- -------------------------------------------------------------------------------------------
Operating Expenses
Purchased Gas 218,939 201,818
Fuel Used in Heat and Electric Generation 18,887 17,807
Operation 84,357 78,169
Maintenance 6,236 6,064
Property, Franchise and Other Taxes 23,610 30,683
Depreciation, Depletion and Amortization 33,886 30,708
Income Taxes 40,778 34,680
- -------------------------------------------------------------------------------------------
426,693 399,929
- -------------------------------------------------------------------------------------------
Operating Income 91,117 83,475
Other Income 4,151 1,575
- -------------------------------------------------------------------------------------------
Income Before Interest Charges and
Minority Interest in Foreign Subsidiaries 95,268 85,050
- -------------------------------------------------------------------------------------------
Interest Charges
Interest on Long-Term Debt 16,225 16,083
Other Interest 6,627 6,198
- -------------------------------------------------------------------------------------------
22,852 22,281
- -------------------------------------------------------------------------------------------
Minority Interest in Foreign Subsidiaries (1,365) (1,624)
- ------------------------------------------------------------------------------------------
Net Income Available for Common Stock 71,051 61,145
EARNINGS REINVESTED IN THE BUSINESS
Balance at January 1 499,301 448,433
- -------------------------------------------------------------------------------------------
570,352 509,578
Dividends on Common Stock
(2000 - $0.465; 1999 - $0.45) 18,154 17,345
- -------------------------------------------------------------------------------------------
Balance at March 31 $552,198 $492,233
===========================================================================================
Earnings Per Common Share:
Basic $1.82 $1.58
===========================================================================================
Diluted $1.81 $1.57
===========================================================================================
Weighted Average Common Shares Outstanding:
Used in Basic Calculation 39,076,668 38,609,655
===========================================================================================
Used in Diluted Calculation 39,347,942 38,876,685
===========================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
<TABLE>
<CAPTION>
National Fuel Gas Company
-------------------------
Consolidated Statements of Income and Earnings
----------------------------------------------
Reinvested in the Business
--------------------------
(Unaudited)
-----------
Six Months Ended
March 31,
(Dollars in Thousands, Except Per Common Share Amounts) 2000 1999
------------------------
<S> <C> <C>
INCOME
Operating Revenues $894,798 $823,826
- ------------------------------------------------------------------------- -----------------
Operating Expenses
Purchased Gas 347,029 312,824
Fuel Used in Heat and Electric Generation 36,667 37,781
Operation 161,881 155,162
Maintenance 11,391 11,647
Property, Franchise and Other Taxes 46,401 52,688
Depreciation, Depletion and Amortization 67,602 60,835
Income Taxes 62,516 52,580
- -------------------------------------------------------------------------------------------
733,487 683,517
- -------------------------------------------------------------------------------------------
Operating Income 161,311 140,309
Other Income 5,365 6,317
- -------------------------------------------------------------------------------------------
Income Before Interest Charges and
Minority Interest in Foreign Subsidiaries 166,676 146,626
- -------------------------------------------------------------------------------------------
Interest Charges
Interest on Long-Term Debt 32,895 33,450
Other Interest 15,186 11,525
- -------------------------------------------------------------------------------------------
48,081 44,975
- ------------------------------------------------------------------------------------------
Minority Interest in Foreign Subsidiaries (2,676) (2,888)
- ------------------------------------------------------------------------------------------
Net Income Available for Common Stock 115,919 98,763
EARNINGS REINVESTED IN THE BUSINESS
Balance at October 1 472,517 428,112
- -------------------------------------------------------------------------------------------
588,436 526,875
Dividends on Common Stock
(2000 - $0.93; 1999 - $0.90) 36,238 34,642
- -------------------------------------------------------------------------------------------
Balance at March 31 $552,198 $492,233
===========================================================================================
Earnings Per Common Share:
Basic $2.97 $2.56
===========================================================================================
Diluted $2.94 $2.54
===========================================================================================
Weighted Average Common Shares Outstanding:
Used in Basic Calculation 38,999,490 38,568,349
===========================================================================================
Used in Diluted Calculation 39,372,508 38,911,856
===========================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
<TABLE>
<CAPTION>
National Fuel Gas Company
-------------------------
Consolidated Balance Sheets
---------------------------
March 31,
2000 September 30,
(Unaudited) 1999
------------------ -------------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
Property, Plant and Equipment $3,454,458 $3,390,875
Less - Accumulated Depreciation, Depletion
and Amortization 1,076,634 1,029,643
- ----------------------------------------------------------------------------------------
2,377,824 2,361,232
- ----------------------------------------------------------------------------------------
Current Assets
Cash and Temporary Cash Investments 42,647 29,222
Receivables - Net 194,554 97,828
Unbilled Utility Revenue 39,514 18,674
Gas Stored Underground 10,521 41,099
Materials and Supplies - at average cost 24,348 23,631
Unrecovered Purchased Gas Costs - 4,576
Prepayments 22,566 35,072
- ----------------------------------------------------------------------------------------
334,150 250,102
- ----------------------------------------------------------------------------------------
Other Assets
Recoverable Future Taxes 87,724 87,724
Unamortized Debt Expense 21,212 21,717
Other Regulatory Assets 18,750 25,214
Deferred Charges 13,523 14,266
Other 94,368 82,331
- ----------------------------------------------------------------------------------------
235,577 231,252
- ----------------------------------------------------------------------------------------
$2,947,551 $2,842,586
========================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
<TABLE>
<CAPTION>
National Fuel Gas Company
-------------------------
Consolidated Balance Sheets
---------------------------
March 31,
2000 September 30,
(Unaudited) 1999
------------------ -------------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization:
Common Stock Equity
Common Stock, $1 Par Value
Authorized - 200,000,000 Shares; Issued
and Outstanding - 39,110,686 Shares and
38,837,499 Shares, Respectively $ 39,111 $ 38,837
Paid in Capital 444,029 431,952
Earnings Reinvested in the Business 552,198 472,517
Accumulated Other Comprehensive Loss (19,654) (4,013)
- -------------------------------------------------------------------------------------
Total Common Stock Equity 1,015,684 939,293
Long-Term Debt, Net of Current Portion 960,734 822,743
- --------------------------------------------------------------------------------------
Total Capitalization 1,976,418 1,762,036
- --------------------------------------------------------------------------------------
Minority Interest in Foreign Subsidiaries 26,106 27,589
- --------------------------------------------------------------------------------------
Current and Accrued Liabilities
Notes Payable to Banks and
Commercial Paper 273,229 393,495
Current Portion of Long-Term Debt 12,549 69,608
Accounts Payable 67,291 82,747
Amounts Payable to Customers 8,496 5,934
Other Accruals and Current Liabilities 171,281 87,310
- --------------------------------------------------------------------------------------
532,846 639,094
- --------------------------------------------------------------------------------------
Deferred Credits
Accumulated Deferred Income Taxes 285,130 275,008
Taxes Refundable to Customers 14,814 14,814
Unamortized Investment Tax Credit 10,476 11,007
Other Deferred Credits 101,761 113,038
- --------------------------------------------------------------------------------------
412,181 413,867
- --------------------------------------------------------------------------------------
Commitments and Contingencies - -
- --------------------------------------------------------------------------------------
$2,947,551 $2,842,586
======================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
<TABLE>
<CAPTION>
National Fuel Gas Company
-------------------------
Consolidated Statement of Cash Flows
------------------------------------
(Unaudited)
-----------
Six Months Ended
March 31,
---------------------------------------
(Thousands of Dollars) 2000 1999
----------------- ---------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income Available for Common Stock $115,919 $98,763
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation, Depletion and Amortization 67,602 60,835
Deferred Income Taxes 10,114 18,754
Minority Interest in Foreign Subsidiaries 2,676 2,888
Other (1,447) 2,254
Change in:
Receivables and Unbilled Utility Revenue (118,440) (149,227)
Gas Stored Underground and Materials and
Supplies 29,235 23,821
Unrecovered Purchased Gas Costs 4,576 6,316
Prepayments 12,497 (11,539)
Accounts Payable (14,712) (11,436)
Amounts Payable to Customers 2,562 2,435
Other Accruals and Current Liabilities 85,336 82,734
Other Assets 327 (7,762)
Other Liabilities (11,275) 13,531
- -------------------------------------------------------------------------------------------------
Net Cash Provided by
Operating Activities 184,970 132,367
- -------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital Expenditures (109,893) (113,653)
Investment in Partnerships (4,050) (3,633)
Other 6,791 90
- -------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (107,152) (117,196)
- -------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Change in Notes Payable to Banks and Commercial Paper (120,095) 35,800
Net Proceeds from Issuance of Long-Term Debt 149,334 98,736
Reduction of Long-Term Debt (62,362) (114,334)
Dividends Paid on Common Stock (36,099) (34,559)
Proceeds from Issuance of Common Stock 8,540 4,761
- -------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (60,682) (9,596)
- -------------------------------------------------------------------------------------------------
Effect of Exchange Rates on Cash (3,711) (1,440)
- -------------------------------------------------------------------------------------------------
Net Increase in Cash and Temporary Cash 13,425 4,135
Investments
Cash and Temporary Cash Investments at October 1 29,222 30,437
- -------------------------------------------------------------------------------------------------
Cash and Temporary Cash Investments at March 31 $42,647 $34,572
=================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
<TABLE>
<CAPTION>
National Fuel Gas Company
-------------------------
Consolidated Statement of Comprehensive Income
----------------------------------------------
(Unaudited)
-----------
Three Months Ended
March 31,
----------------------------------------
(Thousands of Dollars) 2000 1999
------------------ ---------------------
<S> <C> <C>
Net Income Available for Common Stock $71,051 $61,145
- --------------------------------------------------------------------------------------------
Other Comprehensive Income (Loss), Before Tax:
Foreign Currency Translation Adjustment (7,063) (19,175)
Unrealized Gain on Securities Available for Sale 672 -
- --------------------------------------------------------------------------------------------
Other Comprehensive Loss, Before Tax (6,391) (19,175)
Income Tax Expense Related to Unrealized Gain
on Securities Available for Sale (347) -
- --------------------------------------------------------------------------------------------
Other Comprehensive Loss, Net of Tax (6,738) (19,175)
- --------------------------------------------------------------------------------------------
Comprehensive Income $64,313 $41,970
============================================================================================
Six Months Ended
March 31,
----------------------------------------
(Thousands of Dollars) 2000 1999
------------------ ---------------------
Net Income Available for Common Stock $115,919 $98,763
- --------------------------------------------------------------------------------------------
Other Comprehensive Income (Loss), Before Tax:
Foreign Currency Translation Adjustment (16,564) (19,045)
Unrealized Gain on Securities Available for Sale 1,420 -
- --------------------------------------------------------------------------------------------
Other Comprehensive Loss, Before Tax (15,144) (19,045)
Income Tax Expense Related to Unrealized Gain
on Securities Available for Sale (497) -
- --------------------------------------------------------------------------------------------
Other Comprehensive Loss, Net of Tax (15,641) (19,045)
- --------------------------------------------------------------------------------------------
Comprehensive Income $100,278 $79,718
============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
National Fuel Gas Company
-------------------------
Notes to Consolidated Financial Statements
------------------------------------------
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements include the
accounts of the Company and its majority owned subsidiaries. The equity method
is used to account for the Company's investment in minority owned entities. All
significant intercompany balances and transactions have been eliminated where
appropriate.
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Quarterly Earnings. The Company, in its opinion, has included all adjustments
that are necessary for a fair statement of the results of operations for the
reported periods. The consolidated financial statements and notes thereto,
included herein, should be read in conjunction with the financial statements and
notes for the years ended September 30, 1999, 1998 and 1997 that are included in
the Company's combined Annual Report to Shareholders/Form 10-K for 1999. The
2000 consolidated financial statements will be examined by the Company's
independent accountants after the end of the fiscal year.
The earnings for the six months ended March 31, 2000 should not be
taken as a prediction of earnings for the entire fiscal year ending September
30, 2000. Most of the Company's business is seasonal in nature and is influenced
by weather conditions. Because of the seasonal nature of the Company's heating
business, earnings during the winter months normally represent a substantial
part of earnings for the entire fiscal year. The impact of abnormal weather on
earnings during the heating season is partially reduced by the operation of a
weather normalization clause (WNC) included in Distribution Corporation's New
York tariff. The WNC is effective for October through May billings. Distribution
Corporation's tariff for its Pennsylvania jurisdiction does not have a WNC. In
addition, Supply Corporation's straight fixed-variable rate design, which allows
for recovery of substantially all fixed costs in the demand or reservation
charge, reduces the earnings impact of weather fluctuations.
Consolidated Statement of Cash Flows. For purposes of the Consolidated Statement
of Cash Flows, the Company considers all highly liquid debt instruments
purchased with a maturity of generally three months or less to be cash
equivalents. Cash interest payments during the six months ended March 31, 2000
and 1999 amounted to $52.2 million and $45.5 million, respectively. Income taxes
paid during the six months ended March 31, 2000 and 1999 amounted to $22.8
million and $18.6 million, respectively. In November 1999, the Company entered
into a non-cash investing activity whereby it issued 54,674 shares of Company
common stock to Supply Corporation, which in turn exchanged those shares for the
assets of Cunningham Natural Gas Corporation. The assets included approximately
$1.2 million of property, plant and equipment and $1.6 million of other assets.
Reclassification. Certain prior year amounts have been reclassified to conform
with current year presentation.
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
Accumulated Other Comprehensive Income (Loss). The components of Accumulated
Other Comprehensive Income (Loss) are as follows (in thousands):
At March 31, 2000 At September 30, 1999
----------------- ---------------------
Foreign Currency Translation Adjustment $(21,036) $(4,472)
Net Unrealized Gain on Securities
Available for Sale 1,382 459
-------- -------
Accumulated Other Comprehensive Loss $(19,654) $(4,013)
======== =======
Earnings Per Common Share. Basic earnings per common share is computed by
dividing income available for common stock by the weighted average number of
common shares outstanding for the period. Diluted earnings per common share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
The only potentially dilutive securities the Company has outstanding are stock
options. The diluted weighted average shares outstanding shown on the
Consolidated Statement of Income reflects the potential dilution as a result of
these stock options as determined using the Treasury Stock Method.
Note 2 - Income Taxes
The components of federal and state income taxes included in the Consolidated
Statement of Income are as follows (in thousands):
Six Months Ended
March 31,
-------------------------------------
2000 1999
-------------------------------------
Operating Expenses:
Current Income Taxes
Federal $46,675 $26,213
State 4,922 4,513
Deferred Income Taxes
Federal 6,882 16,861
State 505 1,700
Foreign Income Taxes 3,532 3,293
- ------------------------------------------------------------------------------
62,516 52,580
Other Income:
Deferred Investment Tax Credit (525) (332)
Minority Interest in Foreign Subsidiaries (687) (832)
- ------------------------------------------------------------------------------
Total Income Taxes $61,304 $51,416
==============================================================================
The U.S. and foreign components of income before income taxes are as follows:
Six Months Ended
March 31,
2000 1999
------------------------------
U.S. $162,667 $134,864
Foreign 14,556 15,315
- -------------------------------------------------------------------------------
$177,223 $150,179
===============================================================================
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
Total income taxes as reported differ from the amounts that were
computed by applying the federal income tax rate to income before income taxes.
The following is a reconciliation of this difference (in thousands):
<TABLE>
Six Months Ended
March 31,
--------------------------------------
2000 1999
----------------- --------------------
<S> <C> <C>
Net income available for common stock $115,919 $ 98,763
Total income taxes 61,304 51,416
- -----------------------------------------------------------------------------------
Income before income taxes $177,223 $150,179
===================================================================================
Income tax expense, computed at
statutory rate of 35% $62,028 $ 52,563
Increase (reduction) in taxes resulting from:
State income taxes 3,527 4,038
Depreciation 955 1,037
Prior years tax adjustment - (1,309)
Foreign tax in excess of (less than)
statutory rate (2,250) (2,898)
Miscellaneous (2,956) (2,015)
- -----------------------------------------------------------------------------------
Total Income Taxes $61,304 $ 51,416
===================================================================================
</TABLE>
Significant components of the Company's deferred tax liabilities
(assets) were as follows (in thousands):
<TABLE>
<CAPTION>
At March 31, 2000 At September 30, 1999
--------------------------------- ----------------------------
<S> <C> <C>
Deferred Tax Liabilities:
Excess of tax over book depreciation $222,609 $227,881
Exploration and intangible well drilling costs 108,560 95,034
Other 39,686 39,040
- ------------------------------------------------------ --------------------------------- ----------------------------
Total Deferred Tax Liabilities 370,855 361,955
- ------------------------------------------------------ --------------------------------- ----------------------------
Deferred Tax Assets:
Capitalized overheads (28,517) (26,861)
Other (57,208) (60,086)
- ------------------------------------------------------ --------------------------------- ----------------------------
Total Deferred Tax Assets (85,725) (86,947)
- ------------------------------------------------------ --------------------------------- ----------------------------
Total Net Deferred Income Taxes $285,130 $275,008
====================================================== ================================= ============================
</TABLE>
The Internal Revenue Service audits of the Company for the years 1977
- - 1994 were settled during December 1998. Net income for the six months ended
March 31, 1999 was increased by approximately $3.9 million as a result of
interest, net of tax and other adjustments, related to this settlement.
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
Note 3 - Capitalization
Common Stock. During the six months ended March 31, 2000, the Company issued
218,513 shares of common stock under the Company's stock and benefit plans. As
previously discussed, 54,674 shares were issued for the purchase of the assets
of Cunningham Natural Gas Corporation.
On February 17, 2000, 725,500 stock options were granted at an
exercise price of $42.6563 per share. On March 17, 2000, 25,000 stock options
were granted at an exercise price of $41.5625 per share.
In February 2000, the Company issued $150.0 million of 7.30%
medium-term notes due in February 2003. After deducting underwriting discounts
and commissions, the net proceeds to the Company amounted to $149.3 million. The
proceeds of this debt issuance were used to redeem $50.0 million of 6.60%
medium-term notes which matured in February 2000 and to reduce short-term debt.
Note 4 - Derivative Financial Instruments
Seneca has entered into certain price swap agreements and options to manage a
portion of the market risk associated with fluctuations in the price of natural
gas and crude oil in an effort to provide more stability to its operating
results. These agreements and options are not held for trading purposes. The
price swap agreements call for Seneca to receive monthly payments from (or make
payments to) other parties based upon the difference between a fixed and a
variable price as specified by the agreement. The variable price is either a
crude oil price quoted on the New York Mercantile Exchange or a natural gas
price quoted in "Inside FERC." These variable prices are highly correlated with
the market prices received by Seneca for its natural gas and crude oil
production. The fair value of outstanding natural gas and crude oil price swap
agreements and options discussed below reflect the estimated amounts Seneca
would pay or receive to terminate its derivative financial instruments at March
31, 2000.
At March 31, 2000, Seneca had natural gas price swap agreements
covering a notional amount of 34.5 billion cubic feet (Bcf) extending through
2003 at a weighted average fixed rate of $2.69 per thousand cubic feet (Mcf).
Seneca also had crude oil price swap agreements covering a notional amount of
3,940,000 barrels (bbls) extending through 2003 at a weighted average fixed rate
of $19.45 per bbl. The fair value of Seneca's outstanding natural gas and crude
oil price swap agreements at March 31, 2000 was a net loss of approximately
$23.0 million. This loss was offset by corresponding unrecognized gains from
Seneca's anticipated natural gas and crude oil production over the terms of the
price swap agreements.
Seneca recognized net losses of $6.2 million and $10.4 million
related to settlements of its price swap agreements during the quarter and six
months ended March 31, 2000, respectively. During the quarter and six months
ended March 31, 1999, Seneca recognized net gains of $4.4 million and $5.9
million, respectively, related to its price swap agreements. Gains or losses
from Seneca's price swap agreements are accrued in operating revenues on the
Consolidated Statement of Income at the contract settlement dates. As the price
swap agreements have been designated as hedges, these gains or losses were
offset by corresponding gains or losses from Seneca's natural gas and crude oil
production.
At March 31, 2000, Seneca had the following options outstanding:
<TABLE>
<CAPTION>
Type of Option Notional Amount Weighted Average Strike Price
- -------------- --------------- -----------------------------
<S> <C> <C>
Written Call Options (1) 10.4 Bcf or 550,000 bbls $2.53/Mcf or $18.00/bbl
Written Put Option 550,000 bbls $12.50/bbl
Purchased Call Option 732,000 bbls $20.00/bbl
</TABLE>
(1) The counterparty has a choice between a natural gas call option and a crude
oil call option, depending on whichever option has greater value to the
counterparty.
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
Seneca's call and put options are being marked-to-market with gains or
losses recorded in Operating Revenues on the Consolidated Statement of Income.
The mark-to-market adjustment for the quarter ended March 31, 2000 was a loss of
$2.5 million, which offset the mark-to-market gain reported in the quarter ended
December 31, 1999. There was not a corresponding mark-to-market adjustment
during the quarter or six months ended March 31, 1999. The fair value of the
call and put options at March 31, 2000 was a net loss of $3.6 million. During
the quarter and six months ended March 31, 2000, Seneca paid the counterparty
$2.0 million and $3.5 million, respectively, related to the exercise of a
portion of the written call options and received $3.2 million and $4.8 million,
respectively, from the counterparty related to Seneca's exercise of a portion of
the $20.00 per bbl call options that it had purchased. There were minor
settlements (less than $100,000) related to Seneca's put options during the
quarter and six months ended March 31, 1999. There were no settlements related
to Seneca's call options during the quarter or six months ended March 31, 1999.
The Company is exposed to credit risk on the price swap agreements that
Seneca has entered into, as well as on the call options that Seneca has
purchased. Credit risk relates to the risk of loss that the Company would incur
as a result of nonperformance by counterparties pursuant to the terms of their
contractual obligations. To mitigate such credit risk, management performs an
initial credit check, and then on an ongoing basis monitors counterparty credit
exposure.
NFR utilizes exchange-traded futures and exchange-traded options to
manage a portion of the market risk associated with fluctuations in the price of
natural gas. Such futures and options are not held for trading purposes. At
March 31, 2000, NFR had natural gas futures contracts covering 2.6 Bcf of gas on
a net basis extending through 2002 at a weighted average contract price of $2.72
per Mcf. NFR had sold natural gas options covering 20.9 Bcf of gas extending
through 2001 at a weighted average strike price of $3.24 per Mcf. NFR also had
purchased natural gas options covering 11.2 Bcf of gas extending through 2001 at
a weighted average strike price of $2.92 per Mcf. The exchange-traded futures
and exchange-traded options are used to hedge NFR's purchase and sale
commitments and storage gas inventory. The fair value of NFR's outstanding
exchange-traded futures and exchange-traded options at March 31, 2000 was a net
loss of approximately $0.6 million. This fair value reflects the estimated net
amount that NFR would pay to terminate its exchange-traded futures and
exchange-traded options at March 31, 2000. Since these exchange-traded futures
contracts and exchange-traded options qualify and have been designated as
hedges, any gains or losses resulting from market price changes would be
substantially offset by the related commodity transaction.
Gains or losses from natural gas futures and options are recorded in
Other Deferred Credits on the Consolidated Balance Sheet until the hedged
commodity transaction occurs, at which point they are reflected in operating
revenues on the Consolidated Statement of Income.
NFR recognized net gains of $0.3 million and $1.9 million related to
futures contracts and options during the quarter and six months ended March 31,
2000, respectively. During the quarter and six months ended March 31, 1999, NFR
recognized net losses of $4.4 million and $5.4 million, respectively, related to
futures contracts and options. Since these futures contracts and options qualify
and have been designated as hedges, these net gains or losses were substantially
offset by the related commodity transactions.
Privni severozapadni teplarenska, a.s. (PSZT) utilizes an interest rate
swap to mitigate interest rate fluctuations on its Czech koruna (CZK)
1,516,127,800 term loan ($40.1 million at March 31, 2000), which carries a
variable interest rate of six month Prague Interbank Offered Rate (PRIBOR) plus
0.475%. Under the terms of the interest rate swap, which extends until 2001,
PSZT pays a fixed rate of 8.31% and receives a floating rate of six month
PRIBOR. PSZT recognized a loss of approximately $0.3 million and $0.4 million
related to this interest rate swap during the quarter and six months ended March
31, 2000, respectively. The fair value of PSZT's interest rate swap at March 31,
2000 was a loss of approximately $1.2 million.
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
Note 5 - Commitments and Contingencies
Environmental Matters. It is the Company's policy to accrue estimated
environmental clean-up costs (investigation and remediation) when such amounts
can reasonably be estimated and it is probable that the Company will be required
to incur such costs. Distribution Corporation and Supply Corporation have
estimated their clean-up costs related to former manufactured gas plant and
former gasoline plant sites and third party waste disposal sites will be in the
range of $8.9 million to $9.9 million. The minimum liability of $8.9 million has
been recorded on the Consolidated Balance Sheet at March 31, 2000. Other than
discussed in Note H of the 1999 Form 10-K (referred to below), the Company is
currently not aware of any material additional exposure to environmental
liabilities. However, adverse changes in environmental regulations or other
factors could impact the Company.
The Company is subject to various federal, state and local laws and
regulations relating to the protection of the environment. The Company has
established procedures for the ongoing evaluation of its operations to identify
potential environmental exposures and comply with regulatory policies and
procedures.
For further discussion refer to Note H - Commitments and Contingencies
under the heading "Environmental Matters" in Item 8 of the Company's 1999 Form
10-K.
Other. The Company is involved in litigation arising in the normal course of
business. The Company is involved in regulatory matters arising in the normal
course of business that involve rate base, cost of service and purchased gas
cost issues. While the resolution of such litigation or regulatory matters could
have a material effect on earnings and cash flows in the year of resolution,
none of this litigation, and none of these regulatory matters, are expected to
have a material adverse effect on the financial condition of the Company at this
time.
Note 6 - Business Segment Information. The Company has six reportable segments:
Utility, Pipeline and Storage, Exploration and Production, International, Energy
Marketing, and Timber. The breakdown of the Company's reportable segments is
based upon a combination of factors including differences in products and
services, regulatory environment and geographic factors.
The data presented in the tables below reflect the reportable segments
and reconciliations to consolidated amounts. There have been no changes in the
basis of segmentation nor in the basis of measuring segment profit or loss from
those used in the 1999 Form 10-K. There have been no material changes in the
amount of assets for any operating segment from the amounts disclosed in the
1999 Form 10-K.
<PAGE>
Item 1. Financial Statements (Concl.)
----------------------------
Quarter Ended March 31, 2000 (Thousands)
- -----------------------------------------------------------------------------
Pipeline Exploration
and and Energy
Utility Storage Production International Marketing
----------------------------------------------------------------------------
Revenue from
External Customers $337,834 $20,968 $50,350 $39,609 $53,733
Intersegment
Revenues 8,540 22,228 - - -
Segment Profit:
Net Income 41,525 10,156 7,879 4,317 1,465
Quarter Ended March 31, 2000 (Thousands)
- -------------------------------------------------------------------------------
Total Corporate and
Reportable Intersegment Total
Timber Segments All Other Eliminations Consolidated
------------------------------------------------------------------------------
Revenue from
External Customers $11,531 $514,025 $3,785 $ - $517,810
Intersegment
Revenues - 30,768 - (30,768) -
Segment Profit:
Net Income 4,090 69,432 672 947 71,051
Six Months Ended March 31, 2000 (Thousands)
- -----------------------------------------------------------------------------
Exploration
Pipeline and Energy
Utility and Production InternationalMarketing
Storage
- -----------------------------------------------------------------------------
Revenue from
External
Customers $566,744 $42,039 $100,143 $77,682 $82,908
Intersegment
Revenues 12,846 44,322 225 - -
Segment Profit:
Net Income 63,278 19,438 15,884 9,000 1,448
Six Months Ended March 31, 2000 (Thousands)
- --------------------------------------------------------------------------------
Total Corporate and
Reportable Intersegment Total
Timber Segments All Other Eliminations Consolidated
- --------------------------------------------------------------------------------
Revenue from
External
Customers $20,271 $889,787 $5,011 $ - $894,798
Intersegment
Revenues - 57,393 - (57,393) -
Segment Profit:
Net Income 5,020 114,068 527 1,324 115,919
Quarter Ended March 31, 1999 (Thousands)
- -----------------------------------------------------------------------------
Exploration
Pipeline and Energy
Utility and Production InternationalMarketing
Storage
- -----------------------------------------------------------------------------
Revenue from
External
Customers $342,632 $22,516 $31,170 $40,812 $35,848
Intersegment
Revenues 2,872 21,596 2,490 - -
Segment Profit:
Net Income 40,320 10,769 119 6,209 663
Quarter Ended March 31, 1999 (Thousands)
- -------------------------------------------------------------------------------
Total Corporate and
Reportable Intersegment Total
Timber Segments All Other Eliminations Consolidated
- -------------------------------------------------------------------------------
Revenue from
External
Customers $9,686 $482,664 $740 $ - $483,404
Intersegment
Revenues - 26,958 - (26,958) -
Segment Profit:
Net Income 2,531 60,611 159 375 61,145
Six Months Ended March 31, 1999 (Thousands)
- -----------------------------------------------------------------------------
Exploration
Pipeline and Energy
Utility and Production InternationalMarketing
Storage
- -----------------------------------------------------------------------------
Revenue from
External
Customers $563,621 $43,293 $60,346 $81,077 $56,275
Intersegment
Revenues 4,033 42,913 4,942 - -
Segment Profit:
Net Income 58,999 23,099 407 10,492 884
Six Months Ended March 31, 1999 (Thousands)
- -------------------------------------------------------------------------------
Total Corporate and
Reportable Intersegment Total
Timber Segments All Other Eliminations Consolidated
- -------------------------------------------------------------------------------
Revenue from
External
Customers $17,776 $822,388 $1,438 $ - $823,826
Intersegment
Revenues - 51,888 - (51,888) -
Segment Profit:
Net Income 3,860 97,741 200 822 98,763
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
RESULTS OF OPERATIONS
Earnings. The Company's earnings were $71.1 million, or $1.82 per common share
($1.81 per common share on a diluted basis), for the quarter ended March 31,
2000. This compares with earnings of $61.1 million, or $1.58 per common share
($1.57 per common share on a diluted basis), for the quarter ended March 31,
1999. The increase in earnings of approximately $10.0 million is the result of
higher earnings in the Exploration and Production, Utility, Timber, and Energy
Marketing segments. These higher earnings were offset in part by lower earnings
in the International and Pipeline and Storage segments.
The Company's earnings were $115.9 million, or $2.97 per common share
($2.94 per common share on a diluted basis), for the six months ended March 31,
2000. This compares with earnings of $98.8 million, or $2.56 per common share
($2.54 per common share on a diluted basis), for the six months ended March 31,
1999. The increase in earnings of $17.1 million is the result of higher earnings
in the Exploration and Production, Utility, Timber, and Energy Marketing
segments. These increases were offset in part by lower earnings in the Pipeline
and Storage and International segments.
Additional discussion of earnings in each of the business segments
can be found in the business segment information that follows.
Earnings by Segment
<TABLE>
<CAPTION>
- ---------------------------- ---------------------------------- ----------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
- ---------------------------- ---------------------------------- ----------------------------------
- ---------------------------- ---------------- ----------------- ---------------- -----------------
(Thousands) 2000 1999 2000 1999
- ---------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Utility $41,525 $40,320 $63,278 $58,999
Pipeline and Storage 10,156 10,769 19,438 23,099
Exploration and Production 7,879 119 15,884 407
International 4,317 6,209 9,000 10,492
Energy Marketing 1,465 663 1,448 884
Timber 4,090 2,531 5,020 3,860
- ---------------------------- ---------------- ----------------- ---------------- -----------------
Total Reportable Segments 69,432 60,611 114,068 97,741
All Other 672 159 527 200
Corporate 947 375 1,324 822
- ---------------------------- ---------------- ----------------- ---------------- -----------------
Total Consolidated $71,051 $61,145 $115,919 $98,763
- ---------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
Utility
Utility Operating Revenues
<TABLE>
<CAPTION>
- ---------------------------- ---------------------------------- ----------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
- ---------------------------- ---------------- ----------------- ---------------- -----------------
(Thousands) 2000 1999 2000 1999
- ---------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Retail Sales Revenues:
Residential $238,176 $255,452 $407,820 $420,533
Commercial 41,402 49,051 68,562 78,231
Industrial 4,984 5,965 9,475 9,370
- ---------------------------- ---------------- ----------------- ---------------- -----------------
284,562 310,468 485,857 508,134
- ---------------------------- ---------------- ----------------- ---------------- -----------------
Off-System Sales 20,822 10,647 29,188 17,496
Transportation 41,503 27,713 65,306 46,665
Other (513) (3,324) (761) (4,641)
- ---------------------------- ---------------- ----------------- ---------------- -----------------
$346,374 $345,504 $579,590 $567,654
- ---------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
Utility Throughput
<TABLE>
<CAPTION>
- ---------------------------- ---------------------------------- ----------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
- ---------------------------- ---------------- ----------------- ---------------- -----------------
(MMcf) 2000 1999 2000 1999
- ---------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Retail Sales:
Residential 30,994 34,762 51,460 54,977
Commercial 5,841 7,191 9,518 11,130
Industrial 1,093 1,385 2,079 2,231
- ---------------------------- ---------------- ----------------- ---------------- -----------------
37,928 43,338 63,057 68,338
- ---------------------------- ---------------- ----------------- ---------------- -----------------
Off-System Sales 5,860 5,195 8,620 7,971
Transportation 26,850 22,932 43,659 37,902
- ---------------------------- ---------------- ----------------- ---------------- -----------------
70,638 71,465 115,336 114,211
- ---------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
2000 Compared with 1999
Operating revenues for the Utility segment increased $0.9 million and $11.9
million, respectively, for the quarter and six months ended March 31, 2000 as
compared with the same periods a year ago. These increases resulted from higher
transportation, off-system sales and other revenue offset in part by lower
retail gas sales revenue.
Lower volumes of retail gas sales because of weather that was warmer
than the prior year's periods and because of the migration of residential and
small commercial retail customers to transportation service were the primary
reasons for the decrease in retail gas sales revenue. This migration to
transportation service was also the primary cause of the increase in volumes
transported and transportation revenue. On a combined basis, retail gas sales
and transportation revenue decreased $12.1 million and $3.6 million for the
quarter and six months ended March 31, 2000, respectively, as compared with the
same periods a year ago. As customers continue to migrate to marketers for their
gas supplies while using Distribution Corporation for gas transportation
service, Utility operating revenues are expected to decline since such revenues
will not include the gas costs associated with the gas that is delivered on
behalf of the marketers under this transportation service.* However, the Company
realized an increase in operating revenues in its Energy Marketing segment
related to this customer migration. See the Energy Marketing section below.
Restructuring in the Utility segment's service territory is further discussed in
the "Rate Matters" section that follows.
Off-system gas sales increased $10.2 million and $11.7 million,
respectively, for the quarter and six months ended March 31, 2000, as compared
with the same periods a year ago, largely due to increased gas prices in
combination with higher volumes. However, the margins resulting from off-system
sales are minimal.
Other operating revenues increased $2.8 million and $3.9 million,
respectively, for the quarter and six months ended March 31, 2000, as compared
with the same periods a year ago. Other operating revenues in the quarter and
six months ended March 31, 1999 were reduced by $3.2 million and $4.9 million,
respectively, for the recording of a special gas restructuring reserve to be
applied against incremental costs that could result from the New York Public
Service Commission's (NYPSC) gas restructuring effort. No such reserve is
required in 2000 by the terms of the current rate settlement. Partly offsetting
this increase to other operating revenues, Distribution Corporation accrued an
estimated refund provision for a 50% sharing with customers of earnings over a
predetermined amount in accordance with the New York rate settlement of 1998.
The estimated refund provision was $1.1 million for the quarter ended March 31,
2000 and $2.2 million for the six months ended March 31, 2000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
The Utility segment's second quarter 2000 earnings were $41.5 million,
an increase of $1.2 million when compared with second quarter 1999 earnings. The
most significant reason for the increase was that, as noted above, last year's
quarter included a portion (approximately $2.1 million reduction to earnings) of
the 1999 special gas restructuring reserve. Partially offsetting this increase,
the second quarter 2000 earnings included an estimated refund provision
(approximately $0.7 million reduction to earnings), which is also discussed
above. Weather, which in the Pennsylvania jurisdiction was approximately 7.8%
warmer than last year's quarter, also partially offset the increase resulting
from the nonrecurrence of the special gas restructuring reserve. The impact of
weather variations on earnings in the New York jurisdiction is mitigated by that
jurisdiction's weather normalization clause (WNC). The WNC in New York, which
covers the eight month period from October through May, has had a stabilizing
effect on earnings for the New York rate jurisdiction. In addition, in periods
of colder than normal weather, the WNC benefits Distribution Corporation's New
York customers. For the quarters ended March 31, 2000 and 1999, as the weather
was warmer than normal in both periods, the WNC preserved earnings of $4.0
million and $1.9 million, respectively.
The Utility segment's earnings for the six months ended March 31, 2000
were $63.3 million, an increase of $4.3 million when compared with the earnings
for the six months ended March 31, 1999. This increase can be attributed
primarily to expenses related to an early retirement offer in 1999
(approximately $3.0 million reduction to earnings in 1999) as well as the 1999
special gas restructuring reserve (approximately $3.2 million reduction to
earnings in 1999), which was discussed above. Both the early retirement offer
and the gas restructuring reserve did not recur in 2000. For the six months
ended March 31, 2000, an estimated refund provision (approximately $1.4 million
reduction to earnings) was recorded, as previously discussed. This partially
offset the earnings increase resulting from the nonrecurrence of the early
retirement offer and the gas restructuring reserve in 2000. Weather, which in
the Pennsylvania jurisdiction was approximately 2.4% warmer than the six months
ended March 31, 1999, also reduced earnings in 2000. In the New York
jurisdiction, the impact of weather variations was mitigated by the WNC. For the
six months ended March 31, 2000 and 1999, the WNC preserved earnings of $6.7
million and $4.8 million, respectively.
Degree Days
<TABLE>
<CAPTION>
- ---------------------------- -------------- -------------- -------------------- --------------------------------
Percent (Warmer)
Three Months Ended Colder Than
--------------------------------
March 31 Normal 2000 1999 Normal Prior Year
- ---------------------------- -------------- -------------- -------------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Buffalo 3,430 3,058 3,277 (10.8%) (6.7%)
Erie 3,221 2,789 3,026 (13.4%) (7.8%)
- ---------------------------- -------------- -------------- -------------------- ----------------- --------------
Six Months Ended
March 31
- ---------------------------- -------------- -------------- -------------------- ----------------- --------------
Buffalo 5,757 5,154 5,249 (10.5%) (1.8%)
Erie 5,256 4,643 4,758 (11.7%) (2.4%)
- ---------------------------- -------------- -------------- -------------------- ----------------- --------------
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
Pipeline and Storage
Pipeline and Storage Operating Revenues
<TABLE>
<CAPTION>
- ------------------------------ ---------------------------------- ----------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
- ------------------------------ ---------------- ----------------- ---------------- -----------------
(Thousands) 2000 1999 2000 1999
- ------------------------------ ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Firm Transportation $24,417 $24,308 $47,178 $47,593
Interruptible Transportation 152 135 212 300
- ------------------------------ ---------------- ----------------- ---------------- -----------------
24,569 24,443 47,390 47,893
- ------------------------------ ---------------- ----------------- ---------------- -----------------
Firm Storage Service 16,128 15,805 32,112 31,462
Interruptible Storage Service 50 34 172 163
- ------------------------------ ---------------- ----------------- ---------------- -----------------
16,178 15,839 32,284 31,625
- ------------------------------ ---------------- ----------------- ---------------- -----------------
Other 2,449 3,830 6,687 6,688
- ------------------------------ ---------------- ----------------- ---------------- -----------------
$43,196 $44,112 $86,361 $86,206
- ------------------------------ ---------------- ----------------- ---------------- -----------------
</TABLE>
Pipeline and Storage Throughput
<TABLE>
<CAPTION>
- ------------------------------ ---------------------------------- ----------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
- ------------------------------ ---------------- ----------------- ---------------- -----------------
(MMcf) 2000 1999 2000 1999
- ------------------------------ ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Firm Transportation 102,109 106,901 184,739 186,424
Interruptible Transportation 2,206 1,666 2,448 3,682
- ------------------------------ ---------------- ----------------- ---------------- -----------------
104,315 108,567 187,187 190,106
- ------------------------------ ---------------- ----------------- ---------------- -----------------
</TABLE>
2000 Compared with 1999
Operating revenues for the Pipeline and Storage segment decreased $0.9 million
for the quarter ended March 31, 2000, as compared with the same period a year
ago. This decrease was due mainly to lower revenues from unbundled pipeline
sales and open access transportation, offset partially by higher storage service
revenues. For the six months ended March 31, 2000, operating revenues were
basically flat with operating revenues for the six months ended March 31, 1999.
Higher storage service revenues were largely offset by lower transportation
revenues.
The Pipeline and Storage segment's second quarter 2000 earnings were
$10.2 million, a decrease of $0.6 million when compared with the second quarter
of 1999's earnings. Lower revenues from unbundled pipeline sales and open access
transportation combined with higher operation and maintenance expense
contributed to this decrease.
The Pipeline and Storage segment's earnings for the six months ended
March 31, 2000 were $19.4 million, a decrease of $3.7 million when compared with
the earnings for the six months ended March 31, 1999. Higher operation and
maintenance expense contributed to this decrease combined with the fact that the
prior year's earnings included interest income and a reduction in income taxes
related to the final settlement of Internal Revenue Service audits of years
1977-1994.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
Exploration and Production
Exploration and Production Operating Revenues
<TABLE>
<CAPTION>
- ---------------------------- ---------------------------------- ----------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
- ---------------------------- ---------------------------------- ----------------------------------
- ---------------------------- ---------------- ----------------- ---------------- -----------------
(Thousands) 2000 1999 2000 1999
- ---------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Gas (after Hedging) $28,580 $19,529 $55,211 $37,678
Oil (after Hedging) 19,860 10,782 37,435 21,316
Gas Processing Plant 4,279 2,865 8,371 5,592
Other (2,369) 484 (649) 702
- ---------------------------- ---------------- ----------------- ---------------- -----------------
$50,350 $33,660 $100,368 $65,288
- ---------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
2000 Compared with 1999
Operating revenues for the Exploration and Production segment increased $16.7
million and $35.1 million, respectively, for the quarter and six months ended
March 31, 2000, as compared with the same periods a year ago. For the quarter
ended March 31, 2000, gas production revenue (after hedging) and oil production
revenue (after hedging) each increased $9.1 million due to increased production
and prices. For the six months ended March 31, 2000, gas production revenue
(after hedging) and oil production revenue (after hedging) increased $17.5
million and $16.1 million, respectively, due to increased production and prices.
Refer to the tables below for production volumes and average price information.
Revenue from Seneca's gas processing plant was up $1.4 million and $2.8 million,
respectively, for the quarter and six months ended March 31, 2000 as compared
with the same periods a year ago. Other revenue decreased $2.9 million and $1.4
million, respectively, for the quarter and six months ended March 31, 2000, as
compared with the same periods a year ago. The decreases to other revenues
resulted primarily from mark-to-market and other revenue adjustments related to
written options. Refer to further discussion of written options in the "Market
Risk Sensitive Instruments" section that follows and in Item 1, Note 4 -
Derivative Financial Instruments.
The Exploration and Production segment's second quarter 2000 earnings
were $7.9 million, an increase of $7.8 million when compared with the second
quarter of 1999's earnings. As discussed above, significant improvement in oil
and gas pricing combined with an increase in production were the main reasons
for higher earnings. A 19% increase in gas production was attributable mainly to
offshore production at Vermilion block 309 and to production from the South Lost
Hills field in California. Partly offsetting these increases in revenues were
increases in depletion expense (due to higher production volumes and higher
depletable base) and lease operating costs (due to increased production), and a
negative mark-to-market revenue adjustment related to written options.
The Exploration and Production segment's earnings for the six months
ended March 31, 2000 were $15.9 million, an increase of $15.5 million when
compared with the earnings for the six months ended March 31, 1999. As discussed
above, significant improvement in oil and gas pricing combined with an increase
in production were the main reasons for higher earnings. Partly offsetting these
increases were higher depletion expense and lease operating costs. Earnings were
also reduced due to revenue adjustments related to written options discussed
above. In addition, there was a decrease in interest income as 1999 included
nonrecurring interest received from the final settlement of the IRS audits in
December 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
Production Volumes
<TABLE>
<CAPTION>
- ---------------------------- ---------------------------------- ----------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
- ---------------------------- ---------------- ----------------- ---------------- -----------------
2000 1999 2000 1999
- ---------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Gas Production (MMcf)
Gulf Coast 8,142 6,507 16,087 12,941
West Coast 1,126 985 2,243 1,789
Appalachia 1,045 1,154 2,152 2,311
- ---------------------------- ---------------- ----------------- ---------------- -----------------
10,313 8,646 20,482 17,041
- ---------------------------- ---------------- ----------------- ---------------- -----------------
Oil Production (thousands of barrels)
Gulf Coast 331 337 653 670
West Coast 707 657 1,392 1,293
Appalachia 1 2 5 5
- ---------------------------- ---------------- ----------------- ---------------- -----------------
1,039 996 2,050 1,968
- ---------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
Average Prices
- ---------------------------- ---------------------------------- ----------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
- ---------------------------- ---------------- ----------------- ---------------- -----------------
2000 1999 2000 1999
- ---------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Average Gas Price/Mcf
Gulf Coast $2.59 $1.73 $2.58 $1.86
West Coast $2.61 $1.85 $2.75 $2.09
Appalachia $2.89 $2.53 $2.89 $2.47
Weighted Average $2.62 $1.85 $2.63 $1.97
Weighted Average After Hedging $2.77 $2.26 $2.70 $2.21
Average Oil Price/bbl
Gulf Coast $28.67 $11.67 $26.05 $11.76
West Coast $23.88 $9.09 $21.96 $8.96
Appalachia $25.10 $11.45 $22.58 $12.31
Weighted Average $25.41 $9.97 $23.26 $9.92
Weighted Average After Hedging $19.12 $10.83 $18.26 $10.83
- ---------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
International
International Operating Revenues
- ----------------------------- ---------------------------------- ----------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
- ----------------------------- ---------------- ----------------- ---------------- -----------------
(Thousands) 2000 1999 2000 1999
- ----------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Heating $29,331 $30,737 $56,690 $59,799
Electricity 9,082 9,458 18,325 19,371
Other 1,196 617 2,667 1,907
- ----------------------------- ---------------- ----------------- ---------------- -----------------
$39,609 $40,812 $77,682 $81,077
- ----------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
International Heating and Electric Volumes
<TABLE>
<CAPTION>
- ------------------------------------------------ ---------------------------------- ----------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
- ------------------------------------------------ ---------------- ----------------- ---------------- -----------------
2000 1999 2000 1999
- ------------------------------------------------ ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Heating Sales (Gigajoules) (1) 4,296,704 4,263,515 8,264,472 8,235,486
Electricity Sales (megawatt hours) 322,042 311,561 639,697 617,842
- ------------------------------------------------ ---------------- ----------------- ---------------- -----------------
</TABLE>
(1) Gigajoules = one billion joules. A joule is a unit of energy.
2000 Compared with 1999
Operating revenues for the International segment decreased $1.2 million and $3.4
million, respectively, for the quarter and six months ended March 31, 2000 as
compared to the same periods a year ago. The decrease reflects a decrease in the
value of the Czech koruna as well as the impact of warm weather and conservation
efforts by customers.
The International segment's second quarter 2000 earnings were $4.3
million, a decrease of $1.9 million when compared with the earnings for the
second quarter of 1999. Earnings were adversely affected by the decline in the
value of the Czech koruna, as discussed above, as well as by lower margins
resulting from warmer weather and higher fuel costs.
The International segment's earnings for the six months ended March 31,
2000 were $9.0 million, a decrease of $1.5 million when compared with the
earnings for the six months ended March 31, 1999. This decrease can be
attributed primarily to lower margins stemming from warm weather and
conservation efforts by customers combined with the decline in the value of the
Czech koruna.
Energy Marketing
Energy Marketing Operating Revenues
<TABLE>
<CAPTION>
- ---------------------------- ---------------------------------- ----------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
- ---------------------------- ---------------- ----------------- ---------------- -----------------
(Thousands) 2000 1999 2000 1999
- ---------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Natural Gas (after Hedging) $52,934 $36,156 $81,562 $56,286
Electricity 395 424 754 708
Other 404 (732) 592 (719)
- ---------------------------- ---------------- ----------------- ---------------- -----------------
$53,733 $35,848 $82,908 $56,275
- ---------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
Energy Marketing Volumes
<TABLE>
<CAPTION>
- ---------------------------- ---------------------------------- ----------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
- ---------------------------- ---------------- ----------------- ---------------- -----------------
2000 1999 2000 1999
- ---------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Natural Gas - (MMcf) 13,101 12,938 22,263 20,338
- ---------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
2000 Compared with 1999
Operating revenues for the Energy Marketing segment increased $17.9 million and
$26.6 million, respectively, for the quarter and six months ended March 31,
2000, as compared with the same periods a year ago. This increase reflects
higher marketing volumes and revenues as NFR's customer base continues to
increase.
NFR utilizes exchange-traded futures and exchange-traded options to
manage a portion of the market risk associated with fluctuations in the price of
natural gas. Refer to further discussion of these hedging activities in Item 1,
Note 4 - Derivative Financial Instruments.
Earnings in the Energy Marketing segment increased $0.8 million and
$0.6 million, respectively, for the quarter and six months ended March 31, 2000,
as compared with the same periods a year ago. These increases reflect the higher
marketing volumes and revenues discussed above. Currently, NFR serves
approximately 29,000 residential customers. As NFR has increased its residential
customer base, margins have improved as residential margins are higher than the
commercial and industrial margins that NFR largely experienced in previous
years. Partially offsetting the increase in margins for the six month period,
NFR experienced higher operating costs from significant advertising costs
related to marketing efforts in the first quarter of 2000.
Timber
Timber Operating Revenues
<TABLE>
<CAPTION>
- ---------------------------- ---------------------------------- ----------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
- ---------------------------- ---------------- ----------------- ---------------- -----------------
2000 1999 2000 1999
- ---------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Log Sales $7,874 $6,401 $13,354 $11,853
Green Lumber Sales 1,233 1,154 2,129 2,097
Kiln Dry Lumber Sales 2,274 1,821 4,464 3,322
Other 150 310 324 504
---------------- ----------------- ---------------- -----------------
$11,531 $9,686 $20,271 $17,776
- ---------------------------- ---------------------------------- ----------------------------------
- ---------------------------- ---------------------------------- ----------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
- ---------------------------- ---------------- ----------------- ---------------- -----------------
Board Feet (Thousands) 2000 1999 2000 1999
- ---------------------------- ---------------- ----------------- ---------------- -----------------
Log Sales 2,574 2,227 5,108 4,080
Green Lumber Sales 2,160 2,443 4,154 4,631
Kiln Dry Lumber Sales 1,690 1,300 3,297 2,304
---------------- ----------------- ---------------- -----------------
6,424 5,970 12,559 11,015
- ---------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
2000 Compared with 1999
Operating revenues for the Timber segment increased $1.8 million and $2.5
million, respectively, for the quarter and six months ended March 31, 2000, as
compared with the same periods a year ago. The increase for the quarter and six
month period resulted primarily from higher veneer log sales and kiln dry lumber
sales. The increase in kiln dry lumber sales is due to the operation of
additional kilns purchased late in the quarter ended December 31, 1998.
Earnings in the Timber segment increased $1.6 million and $1.2 million,
respectively, for the quarter and six months ended March 31, 2000, as compared
with the same periods a year ago. These increases resulted primarily from a
pretax gain of $2.3 million ($1.5 million after tax) on the sale of land and
standing timber in January 2000.
Other Income and Interest Charges
Although variances in Other Income items and Interest Charges are discussed in
the earnings discussion by segment above, following is a recap on a consolidated
basis:
Other Income
Other income increased $2.6 million for the quarter ended March 31, 2000
compared with the quarter ended March 31, 1999. This increase resulted primarily
from the $2.3 million gain on the sale of land and standing timber in the Timber
segment, as discussed above.
Other income decreased $1.0 million for the six months ended March 31,
2000 compared with the six months ended March 31, 1999. This decrease resulted
mainly from approximately $3.2 million of interest income related to the final
settlement of IRS audits for years 1977 - 1994 which was recorded during 1999
and did not recur this year. Partially offsetting this decrease was the gain on
the sale of land and standing timber discussed previously.
Interest Charges
Interest on long-term debt increased $0.1 million for the quarter ended March
31, 2000 as compared with the quarter ended March 31, 1999. This increase can be
attributed primarily to a slightly higher average amount of long-term debt
outstanding combined with higher weighted average interest rates. For the six
months ended March 31, 2000, interest on long-term debt decreased $0.6 million.
This decrease can be attributed to a lower average amount of long-term debt
outstanding offset in part by higher weighted average interest rates.
Other interest charges increased $0.4 million for the quarter ended
March 31, 2000. This increase resulted mainly from higher weighted average
interest rates in the current quarter, offset partially by a decrease in the
average amount of short-term debt outstanding. For the six months ended March
31, 2000, other interest charges increased $3.7 million. Higher weighted average
interest rates for the six month period together with an increase in the average
amount of short-term debt outstanding contributed to this increase. Also, a
reduction in interest charges was recorded in the quarter ended December 1998
related to the final settlement of IRS audits of years 1977 - 1994.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary sources of cash during the six-month period ended March
31, 2000, consisted of cash provided by operating activities, long-term debt and
short-term bank loans and commercial paper. These sources were supplemented by
issuances of common stock under the Company's stock and benefit plans.
Operating Cash Flow.
Internally generated cash from operating activities consists of net income
available for common stock, adjusted for non-cash expenses, non-cash income and
changes in operating assets and liabilities. Non-cash items include
depreciation, depletion and amortization, deferred income taxes and minority
interest in foreign subsidiaries.
Cash provided by operating activities in the Utility and the Pipeline
and Storage segments may vary from period to period because of the impact of
rate cases. In the Utility segment, supplier refunds, over- or under-recovered
purchased gas costs and weather also significantly impact cash flow. The impact
of weather on cash flow is tempered in the Utility segment's New York rate
jurisdiction by its WNC and in the Pipeline and Storage segment by Supply
Corporation's straight fixed-variable rate design.
Because of the seasonal nature of the Company's heating business,
revenues are relatively high during the six months ended March 31 and
receivables and unbilled utility revenue historically increase from September to
March because of winter weather.
The storage gas inventory normally declines during the first and second
quarters of the year and is replenished during the third and fourth quarters.
For storage gas inventory accounted for under the last-in, first-out (LIFO)
method, the current cost of replacing gas withdrawn from storage is recorded in
the Consolidated Statements of Income and a reserve for gas replacement is
recorded in the Consolidated Balance Sheets and is included under the caption
"Other Accruals and Current Liabilities." Such reserve is reduced as the
inventory is replenished.
Net cash provided by operating activities totaled $185.0 million for
the six months ended March 31, 2000, an increase of $52.6 million compared with
$132.4 million provided by operating activities for the six months ended March
31, 1999. The increase can be attributed primarily to higher cash receipts from
the sale of oil and gas and lower interest payments in the Exploration and
Production segment. Higher cash receipts for oil and gas production resulted
from increased oil and gas production and significantly higher prices. Interest
payments are down in this segment due to the retirement of the HarCor Energy,
Inc. 14.875% Senior Secured Notes in March 1999 and July 1999.
Investing Cash Flow.
Expenditures for Long-Lived Assets
Expenditures for long-lived assets include additions to property, plant and
equipment (capital expenditures) and investments in corporations (stock
acquisitions) or partnerships, net of any cash acquired.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
The Company's expenditures for long-lived assets totaled $115.1 million
during the six months ended March 31, 2000. The table below presents these
expenditures:
<TABLE>
<CAPTION>
- --------------------------------- ----------------------- ----------------------- ------------------------
Six Months Ended March 31, 2000
(in millions of dollars)
- --------------------------------- ----------------------- ----------------------- ------------------------
Investments in Total
Capital Corporations Expenditures for
Expenditures and Partnerships Long-Lived Assets
- --------------------------------- ----------------------- ----------------------- ------------------------
<S> <C> <C> <C>
Utility $28.6 $- $28.6
Pipeline and Storage 23.0 1.4 24.4
Exploration and Production 50.1 - 50.1
International 4.1 - 4.1
Timber 4.3 - 4.3
Energy Marketing - - -
All Other 1.0 2.6 3.6
- --------------------------------- ----------------------- ----------------------- ------------------------
$111.1 (1) $4.0 $115.1
- --------------------------------- ----------------------- ----------------------- ------------------------
</TABLE>
(1)Includes non-cash acquisition of $1.2 million in a stock-for-asset swap.
Utility
- -------
The majority of the Utility capital expenditures were made for replacement of
mains and main extensions, as well as for the replacement of service lines.
Pipeline and Storage
- --------------------
The majority of the Pipeline and Storage capital expenditures were made for
additions, improvements, and replacements to this segment's transmission and
storage systems. Of the total capital expenditures, $9.2 million was related to
Supply Corporation's acquisition of another company's interest in the Niagara
Spur Loop Line and the Ellisburg-Leidy pipeline in January 2000. This
acquisition was financed with short-term borrowings. The capital expenditures
also include approximately $1.2 million of natural gas wells and related
pipelines as well as some undeveloped timber property acquired from Cunningham
Natural Gas Corporation (Cunningham) in November 1999. These assets were
acquired through the issuance of 54,674 shares of Company common stock. In
addition to the assets identified above, the Company received Cunningham's
temporary cash investments in exchange for the shares of Company common stock.
During the six months ended March 31, 2000, SIP made a $1.4 million
investment in Independence Pipeline Company, a Delaware general partnership,
bringing its total investment through March 31, 2000 to $12.2 million. This
investment represents a one-third partnership interest. The investment has been
financed with short-term borrowings. Independence Pipeline Company intends to
build a 370 mile natural gas pipeline (Independence Pipeline) from Defiance,
Ohio to Leidy, Pennsylvania at an estimated cost of $680 million.* If the
Independence Pipeline project is not constructed, SIP's share of the development
costs (including SIP's investment in Independence Pipeline Company) is estimated
not to exceed $15.0 million.*
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
On December 17, 1999, the Federal Energy Regulatory Commission (FERC)
issued an Interim Order on the various proceedings making up the Independence
Pipeline project. The Interim Order concluded that construction and operation of
the proposed project would be an environmentally acceptable action, subject to
environmental conditions listed in the Order. The Order conditionally approved
the project, but stated that the FERC would issue a final certificate only after
the project sponsors file new evidence of market support in the form of
long-term transportation contracts with non-affiliates for at least 35% of the
capacity of the Independence and SupplyLink portions of the Independence
Pipeline project. Construction would not be permitted to begin until, among
other things, executed contracts for about 69% of the project's capacity are
filed with the FERC. On April 26, 2000, the FERC issued an order which requires
the Independence Pipeline project sponsors to show by June 26, 2000 that they
have contracted with non-affiliates for 35% of the capacity of the Independence
and SupplyLink portions of the Independence Pipeline project, or FERC will
dismiss the SupplyLink and Independence applications. The Independence Pipeline
project sponsors are working on obtaining the required customer commitments.*
Exploration and Production
- --------------------------
The Exploration and Production segment capital expenditures for the six months
ended March 31, 2000 included approximately $35.6 million for Seneca's offshore
program in the Gulf of Mexico, including offshore drilling expenditures,
offshore construction, lease acquisition costs and geological and geophysical
expenditures. The remaining $14.5 million of capital expenditures included
onshore drilling, construction and recompletion costs for wells located in
Louisiana, Texas and California as well as onshore geological and geophysical
costs, including the purchase of certain 3-D seismic data and fixed asset
purchases.
On April 24, 2000, Seneca announced that an agreement had been reached
whereby Seneca would offer to acquire all of the outstanding shares of Tri Link
Resources Ltd. (Tri Link) at a price of $7.05 (Canadian dollars) per share in
cash.* Mailing of the offering documents to shareholders commenced on May 9,
2000. The transaction value, including assumed debt, is approximately $340
million in Canadian dollars or approximately $230 million in U.S. dollars.* The
offer is subject to the tendering of a minimum 66-2/3% of the Tri Link common
shares to Seneca and obtaining the required regulatory approvals and other
customary conditions. Tri Link has also agreed to pay a $6.3 million (Canadian
dollars) non-completion fee to Seneca under certain circumstances.
Tri Link is a Calgary, Alberta based exploration and production company
which controls nearly three million undeveloped acres in Alberta, Saskatchewan
and Manitoba, Canada. This acquisition will build Seneca's total reserves base
to nearly one trillion cubic feet equivalent.*
Due to the timing of the projected transaction closing date (on or
about June 15, 2000), the Company anticipates that the initial financing of the
acquisition will utilize short-term debt.* After the transaction closing date,
the Company may replace the short-term debt with long-term debt or a combination
of long-term debt and equity securities.*
International
- -------------
The majority of the International segment capital expenditures were concentrated
in the areas of improvements and replacements within the district heating and
power generation plants in the Czech Republic.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
Timber
- ------
The majority of the Timber segment capital expenditures were made for purchases
of timber for Seneca's timber operations, as well as equipment for Highland's
sawmill and kiln operations. As discussed under the Timber segment's results of
operations, in January 2000, this segment sold land and timber with a book value
of $3.0 million for $5.3 million. The resulting gain on this sale of $2.3
million was included in earnings for the quarter ending March 31, 2000.
All Other
- ---------
Expenditures for Long-Lived Assets for all other subsidiaries consisted of
Upstate's purchase of a 50% interest in a gas processing facility and NFR
Power's purchase of a 50% partnership interest in Seneca Energy II, LLC (Seneca
Energy). Seneca Energy generates and sells electricity to a public utility.
Seneca Energy generates the electricity by using methane gas obtained from a
landfill in Seneca Falls, New York, which is owned by an outside party.
The Company continuously evaluates capital expenditures and investments
in corporations and partnerships. The amounts are subject to modification for
opportunities such as the acquisition of attractive oil and gas properties,
timber or storage facilities and the expansion of transmission line capacities.
While the majority of capital expenditures in the Utility segment are
necessitated by the continued need for replacement and upgrading of mains and
service lines, the magnitude of future capital expenditures or other investments
in the Company's other business segments depends, to a large degree, upon market
conditions.*
Financing Cash Flow.
Consolidated short-term debt decreased $120.3 million during the first six
months of 2000. The Company continues to consider short-term bank loans and
commercial paper important sources of cash for temporarily financing capital
expenditures and investments in corporations and/or partnerships, gas-in-storage
inventory, unrecovered purchased gas costs, exploration and development
expenditures and other working capital needs. Fluctuations in these items can
have a significant impact on the amount and timing of short-term debt.
In February 2000, the company issued $150.0 million of 7.30%
medium-term notes due in February 2003. After deducting underwriting discounts
and commissions, the net proceeds to the Company amounted to $149.3 million. The
proceeds of this debt issuance were used to redeem $50.0 million of 6.60%
medium-term notes which matured in February 2000 and to reduce short-term debt.
In March 1998, the Company obtained authorization from the Securities
and Exchange Commission (SEC), under the Public Utility Holding Company Act of
1935, to issue long-term debt securities and equity securities in amounts not
exceeding $2.0 billion at any one time outstanding during the order's
authorization period, which extends to December 31, 2002. In August 1999, the
Company registered $625.0 million of debt and equity securities under the
Securities Act of 1933. After the February 2000 medium-term note issuance
discussed above, the Company currently has $475.0 million of debt and equity
securities registered under the Securities Act of 1933.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
The Company's present liquidity position is believed to be adequate to
satisfy known demands.* Under the Company's existing indenture covenants, at
March 31, 2000, the Company would have been permitted to issue up to a maximum
of $519.0 million in additional long-term unsecured indebtedness at projected
market interest rates. In addition, at March 31, 2000, the Company had
regulatory authorizations and unused short-term credit lines that would have
permitted it to borrow an additional $476.8 million of short-term debt.
The amounts and timing of the issuance and sale of debt and/or equity
securities will depend on market conditions, regulatory authorizations, and the
requirements of the Company.
The Company is involved in litigation arising in the normal course of
business. The Company is involved in regulatory matters arising in the normal
course of business that involve rate base, cost of service and purchased gas
cost issues, among other things. While the resolution of such litigation or
regulatory matters could have a material effect on earnings and cash flows in
the year of resolution, none of this litigation, and none of these regulatory
matters are expected to change materially the Company's present liquidity
position, nor have a material adverse effect on the financial condition of the
Company.*
Market Risk Sensitive Instruments
For a complete discussion of market risk sensitive instruments, refer to "Market
Risk Sensitive Instruments" in Item 7 of the Company's 1999 Form 10-K. There
have been no subsequent material changes to the Company's exposure to market
risk sensitive instruments.
RATE MATTERS
Utility Operation
New York Jurisdiction
On October 21, 1998, the NYPSC approved a rate plan for Distribution Corporation
for the period beginning October 1, 1998 and ending September 30, 2000. The plan
was the result of a settlement agreement entered into by Distribution
Corporation, Staff for the NYPSC (Staff), Multiple Intervenors (an advocate for
large industrial customers) and the State Consumer Protection Board. Under the
plan, Distribution Corporation's rates decreased by $7.2 million, or 1.1%. In
addition, the plan provided customers with up to $6.0 million in bill credits,
disbursed volumetrically over the two year term, reflecting a predetermined
share of excess earnings under a 1996 settlement. An allowed return on equity of
12%, above which additional earnings are to be shared equally with the
customers, was maintained from a 1996 settlement. Finally, as provided by the
rate plan, $7.2 million of 1999 revenues were set aside in a special reserve to
be applied against Distribution Corporation's incremental costs resulting from
the NYPSC's gas restructuring effort further described below.
On November 3, 1998, the NYPSC issued its Policy Statement Concerning
-----------------------------
the Future of the Natural Gas Industry in New York State and Order Terminating
- ----------------------------- ------------------------------------ -----------
Capacity Assignment (Policy Statement). The Policy Statement sets forth the
- --------------------
NYPSC's "vision" on "how best to ensure a competitive market for natural gas in
New York." That vision includes the following goals:
(1) Effective competition in the gas supply market for retail customers;
(2) Downward pressure on customer gas prices;
(3) Increased customer choice of gas suppliers and service options;
(4) A provider of last resort (not necessarily the utility);
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
(5) Continuation of reliable service and maintenance of operations
procedures that treat all participants fairly;
(6) Sufficient and accurate information for customers to use in making
informed decisions;
(7) The availability of information that permits adequate oversight of the
market to ensure fair competition; and
(8) Coordination of Federal and State policies affecting gas supply and
distribution in New York State.
The Policy Statement provides that the most effective way to establish
a competitive market in gas supply is "for local distribution companies to cease
selling gas." The NYPSC indicated in its order that it hopes to accomplish that
objective over a three-to-seven year transition period from the date the Policy
Statement was issued, taking into account "statutory requirements" and the
individual needs of each local distribution company (LDC).* The Policy Statement
directs Staff to schedule "discussions" with each LDC on an "individualized plan
that would effectuate our vision." In preparation for negotiations, LDCs will be
required to address issues such as a strategy to hold new capacity contracts to
a minimum, a long-term rate plan with a goal of reducing or freezing rates, and
a plan for further unbundling. In addition, Staff was instructed to hold
collaborative sessions with multiple parties to discuss generic issues including
reliability and market power regulation. Distribution Corporation has
participated in the collaborative sessions. These collaborative sessions have
not yet produced a consensus document on all issues before the NYPSC.
Distribution Corporation will continue to participate in all future
collaborative sessions.*
Distribution Corporation was recently advised, on an informal basis,
that its "individualized plan" for restructuring to "effectuate [the NYPSC's]
vision" may be included in discussions anticipated in connection with the
current rate settlement, which expires on its own terms on September 30, 2000.
Consistent with that information, Distribution Corporation has tentative plans
to develop a rate and restructuring proposal to be filed on or about July 1,
2000, for an effective date of October 1, 2000.*
On March 22, 2000, the NYPSC issued an order directing electric and gas
utilities to file tariff amendments "to accommodate the wishes of retail access
customers who prefer to receive combined, single bills from either their utility
company or their [marketer]" (the Billing Order). The tariff amendments will
provide for marketer single-bill or utility single-bill services, thereby
allowing a customer to choose a billing preference through the customer's choice
of suppliers - utility or marketer. Distribution Corporation has permitted
marketer single billing since 1996. The Billing Order will permit Distribution
Corporation to provide a single retail bill service for marketers.
Included in the Billing Order is a requirement that utilities design a
"back-out" credit equal to the long run costs avoided by each utility when
billing is provided by another party. On April 24, 2000 Distribution Corporation
submitted draft tariff sheets setting forth a proposed back-out credit
methodology for review and comment by NYPSC Staff and other interested parties.
Although a methodology is described, no back-out credit was calculated.
Distribution Corporation's filing included provisions for a billing service to
be provided by Distribution Corporation, together with additional rules and
regulations governing marketer-provided retail billing.
Several utilities filed requests for rehearing of the Billing Order.
The requests include, among other things, arguments challenging the NYPSC's
authority to impose a back-out credit based on long run avoided costs.
Distribution Corporation chose against joining the other utilities on rehearing
and may, if necessary, pursue other avenues of relief.* At this time,
Distribution Corporation is unable to ascertain the outcome of matters relating
to the Billing Order.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
In conversations with NYPSC Staff prior to the release of the Billing
Order, Distribution Corporation requested approval for a temporary, interim
billing service to be provided in response to marketer inquiries. As a result of
Distribution Corporation's efforts, the Billing Order included a provision for a
billing service as requested. Accordingly, beginning on May 1, 2000,
Distribution Corporation commenced a retail billing service for two marketers
serving approximately 2000 retail customers. The billing service is being
offered to the marketer community for a per-bill fee of $0.50, subject to
modification pursuant to the Billing Order. The temporary billing service will
remain available for interested marketers until it is replaced by a permanent
billing service under the Billing Order.
On April 12, 2000, the NYPSC issued an order setting forth procedures
for implementation of electronic data interchange (EDI) for electronic exchange
of retail access data in New York (EDI Order). As described by the NYPSC, EDI is
the computer-to-computer exchange of routine business information in a standard
form. The NYPSC believes that EDI is necessary to develop uniform data exchange
protocol for the state's customer choice initiatives. The EDI Order adopts
provisions of a report prepared after an EDI collaborative involving utilities,
marketers and other interests. Utilities, including Distribution Corporation,
are required to submit EDI implementation plans on May 26, 2000. Distribution
Corporation was an active participant in the EDI collaborative. The Company is
currently evaluating the EDI Order to determine its effect on current and
planned operations.
The NYPSC continues to address, through various proceedings and
"collaboratives," upstream pipeline capacity issues arising from the
restructuring. At this point, Distribution Corporation remains authorized to
release upstream intermediate capacity to marketers serving former sales
customers. Costs relating to retained upstream transmission capacity are
recovered through a transition cost surcharge. At this time, Distribution
Corporation does not foresee any material changes to upstream capacity
requirements in the near term.*
Pennsylvania Jurisdiction
Distribution Corporation currently does not have a rate case on file with the
Pennsylvania Public Utility Commission (PaPUC). Management will continue to
monitor its financial position in the Pennsylvania jurisdiction to determine the
necessity of filing a rate case in the future.
Effective October 1, 1997, Distribution Corporation commenced a PaPUC
approved customer choice pilot program called Energy Select. Energy Select,
which lasted until April 1, 1999, allowed approximately 19,000 small commercial
and residential customers of Distribution Corporation in the greater Sharon,
Pennsylvania area to purchase gas supplies from qualified, participating
non-utility suppliers (or marketers) of gas. Distribution Corporation was not a
supplier of gas in this pilot. Under Energy Select, Distribution Corporation
delivered the gas to the customer's home or business and remained responsible
for reading customer meters, the safety and maintenance of its pipeline system
and responding to gas emergencies. NFR was a participating supplier in Energy
Select.
Effective February 11, 1999, Distribution Corporation's System Wide
Energy Select tariff was approved by the PaPUC. This program is intended to
expand the Energy Select pilot program described above to apply across
Distribution Corporation's entire Pennsylvania service territory. The plan
borrows many features of the Energy Select pilot, but several important changes
were adopted. Most significantly, the new program includes Distribution
Corporation as a choice for retail consumers, in furtherance of Distribution
Corporation's objective to remain a merchant. Also departing from the pilot
scheme, Distribution Corporation resumes its role as provider of last resort and
maintains customer contact by providing a billing service on its own behalf and,
as an option, for participating marketers.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
A natural gas restructuring bill was signed into law on June 22, 1999.
Entitled the Natural Gas Choice and Competition Act (Act), the new law requires
all Pennsylvania LDCs to file tariffs designed to provide retail customers with
direct access to competitive gas markets. Distribution Corporation submitted its
compliance filing on October 1, 1999 for an effective date on or about July 1,
2000. The filing largely mirrors the System Wide Energy Select program currently
in effect, which substantially complies with the Act's requirements. After
negotiations with PaPUC Staff and intervenors, a settlement was reached with all
parties except for the Pennsylvania Office of Consumer Advocate (OCA).
Accordingly, hearings were held and briefs filed on OCA's open issues. In a
Recommended Decision issued on March 31, 2000, the Administrative Law Judge
rejected the OCA's arguments and recommended approval of the settlement
agreement. Distribution Corporation expects the PaPUC to issue a final decision
on or about July 1, 2000.*
Base rate adjustments in both the New York and Pennsylvania
jurisdictions do not reflect the recovery of purchased gas costs. Such costs are
recovered through operation of the purchased gas adjustment clauses of the
appropriate regulatory authorities.
Pipeline and Storage
Supply Corporation currently does not have a rate case on file with the FERC.
Its last case was settled with the FERC in February 1996. As part of that
settlement, Supply Corporation agreed not to seek recovery of revenues related
to certain terminated service from storage customers until April 1, 2000.
Currently, Supply Corporation does not intend to seek recovery of revenues
related to terminated service from storage customers. Supply Corporation has
been successful in marketing and obtaining executed contracts for such
terminated storage service (at discounted rates) and expects to continue
obtaining executed contracts for additional terminated storage service as it
arises.*
Other Matters
Environmental Matters
It is the Company's policy to accrue estimated environmental clean-up costs
(investigation and remediation) when such amounts can reasonably be estimated
and it is probable that the Company will be required to incur such costs.
Distribution Corporation and Supply Corporation have estimated their clean-up
costs related to former manufactured gas plant and former gasoline plant sites
and third party waste disposal sites will be in the range of $8.9 million to
$9.9 million.* The minimum liability of $8.9 million has been recorded on the
Consolidated Balance Sheet at March 31, 2000. Other than discussed in Note H of
the 1999 Form 10-K (referred to below), the Company is currently not aware of
any material additional exposure to environmental liabilities. However, adverse
changes in environmental regulations or other factors could impact the Company.*
The Company is subject to various federal, state and local laws and
regulations relating to the protection of the environment. The Company has
established procedures for the ongoing evaluation of its operations to identify
potential environmental exposures and comply with regulatory policies and
procedures.
For further discussion refer to Note H - Commitments and Contingencies
under the heading "Environmental Matters" in Item 8 of the Company's 1999 Form
10-K.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
Safe Harbor for Forward-Looking Statements. The Company is including the
following cautionary statement in this Form 10-Q to make applicable and take
advantage of the safe harbor provisions of Section 21E of the Securities
Exchange Act of 1934 for any forward-looking statements made by, or on behalf
of, the Company. Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance, and underlying
assumptions and other statements which are other than statements of historical
facts. From time to time, the Company may publish or otherwise make available
forward-looking statements of this nature. All such subsequent forward-looking
statements, whether written or oral and whether made by or on behalf of the
Company, are also expressly qualified by these cautionary statements. Certain
statements contained herein, including without limitation those which are
designated with a "*", are forward-looking statements and accordingly involve
risks and uncertainties which could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements. The
forward-looking statements contained herein are based on various assumptions,
many of which are based, in turn, upon further assumptions. The Company's
expectations, beliefs and projections are expressed in good faith and are
believed by the Company to have a reasonable basis, including, without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectations, beliefs or
projections will result or be achieved or accomplished. In addition to other
factors and matters discussed elsewhere herein, the following are important
factors that, in the view of the Company, could cause actual results to differ
materially from those discussed in the forward-looking statements:
1. Changes in economic conditions, demographic patterns and weather
conditions
2. Changes in the availability and/or price of natural gas and oil
3. Inability to obtain new customers or retain existing ones
4. Significant changes in competitive factors affecting the Company
5. Governmental/regulatory actions and initiatives, including those
affecting acquisitions, financings, allowed rates of return, industry
and rate structure, franchise renewal, and environmental/safety
requirements
6. Unanticipated impacts of restructuring initiatives in the natural gas
and electric industries
7. Significant changes from expectations in actual capital expenditures
and operating expenses and unanticipated project delays or changes in
project costs
8. The nature and projected profitability of pending and potential
projects and other investments
9. Occurrences affecting the Company's ability to obtain funds from
operations, debt or equity to finance needed capital expenditures and
other investments
10. Uncertainty of oil and gas reserve estimates
11. Ability to successfully identify and finance oil and gas property
acquisitions and ability to operate existing and any subsequently
acquired properties
12. Ability to successfully identify, drill for and produce economically
viable natural gas and oil reserves
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Concl.)
----------------------
13. Changes in the availability and/or price of derivative financial
instruments
14. Inability of the various counterparties to meet their obligations with
respect to the Company's financial instruments
15. Regarding foreign operations - changes in foreign trade and monetary
policies, laws and regulations related to foreign operations,
political and governmental changes, inflation and exchange rates,
taxes and operating conditions
16. Significant changes in tax rates or policies or in rates of inflation
or interest
17. Significant changes in the Company's relationship with its employees
and the potential adverse effects if labor disputes or grievances were
to occur
18. Changes in accounting principles and/or the application of such
principles to the Company
The Company disclaims any obligation to update any forward-looking
statements to reflect events or circumstances after the date hereof.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Refer to the "Market Risk Sensitive Instruments" section in Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Part II. Other Information
- ---------------------------
Item 1. Legal Proceedings
-----------------
For a discussion of various environmental matters, refer to Part I, Item 1 at
Note 5 and to Part I, Item 2 - MD&A of this report under the heading "Other
Matters."
Item 2. Changes in Securities
---------------------
On January 3, 2000, the Company issued 653 unregistered shares of Company common
stock to the non-employee directors of the Company. The shares were issued as
partial consideration for the directors' service during the quarter ended March
31, 2000, pursuant to the Company's Retainer Policy for Non-Employee Directors.
These transactions were exempt from registration by Section 4(2) of the
Securities Act of 1933, as amended, as transactions not involving a public
offering.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Shareholders of National Fuel Gas Company was
held on February 17, 2000. At that meeting, the shareholders elected directors,
appointed independent accountants, approved the Annual At Risk Compensation
Incentive Program, approved amendments to the National Fuel Gas Company 1997
Award and Option Plan, and rejected a shareholder proposal.
The total votes were as follows:
<TABLE>
<CAPTION>
Against Broker
For or Withheld Abstain Non-Votes
--- ----------- ------- ---------
<S> <C> <C>
(i) Election of directors
to serve for a three-
year term:
- Eugene T. Mann 32,771,583 597,663 - -
- George L. Mazanec 32,832,827 536,419 - -
Directors whose term of office continued after the meeting:
Term expiring in 2001: Philip C. Ackerman, James V. Glynn and Bernard S. Lee.
Term expiring in 2002: Robert T. Brady, William J. Hill and Bernard J. Kennedy.
(ii) Appointment of
PricewaterhouseCoopers
LLP as independent
accountants 33,012,619 197,448 159,176 -
(iii) Approval of the Annual
At Risk Compensation
Incentive Program 31,137,734 1,664,810 566,699 -
(iv) Approval of amendments
to the National Fuel Gas
Company 1997 Award and
Option Plan 27,564,260 5,201,522 603,461 -
(v) Action on shareholder
proposed resolution
regarding minority
employment 1,597,964 23,187,734 2,454,065 11,740,343
</TABLE>
Item 5. Other Information
-----------------
Richard Hare retired from his position as President and a Director of Supply
Corporation effective March 31, 2000. Mr. Hare was succeeded as President and a
Director of Supply Corporation by Dennis J. Seeley. Until March 31, 2000, Mr.
Seeley was a Senior Vice President of Distribution Corporation and (since
January 2000) Vice President of the Company. He resigned his positions in
Distribution Corporation and the Company upon his election as President of
Supply Corporation.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
(10) Material Contracts
10.1 National Fuel Gas Company 1997 Award and
Option Plan, as amended and restated through
February 17, 2000.
10.2 Severance Agreement, Release and Waiver
dated March 27, 2000, between National Fuel
Gas Supply
Corporation and Richard Hare
(12) Statements regarding Computation of Ratios:
Ratio of Earnings to Fixed Charges for the
Twelve Months Ended March 31, 2000 and the
Fiscal Years Ended September 30, 1995
through 1999.
(27) Financial Data Schedules
27.1 Financial Data Schedule for the Six Months
Ended March 31, 2000.
27.2 Restated Financial Data Schedule for the Six
Months Ended March 31, 1999.
(99) National Fuel Gas Company Consolidated
Statement of Income for the Twelve Months
Ended March 31, 2000 and 1999.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL FUEL GAS COMPANY
-------------------------
(Registrant)
/s/Joseph P. Pawlowski
--------------------------------
Joseph P. Pawlowski
Treasurer and
Principal Accounting Officer
Date: May 15, 2000
------------
NATIONAL FUEL GAS COMPANY
1997 AWARD AND OPTION PLAN
1. Purpose
The purpose of the Plan is to advance the interests of the Company and
its stockholders, by providing a long-term incentive compensation program that
will be an incentive to the Core Employees of the Company and its Subsidiaries
whose contributions are important to the continued success of the Company and
its Subsidiaries, and by enhancing their ability to attract and retain in their
employ highly qualified persons for the successful conduct of their businesses.
2. Definitions
2.1 "Acceleration Date" means (i) in the event of a Change in
Ownership, the date on which such change occurs, or (ii) with respect to a
Participant who is eligible for treatment under paragraph 25 hereof on account
of the termination of his employment following a Change in Control, the date on
which such termination occurs.
2.2 "Award" means any form of stock option, stock appreciation right,
Restricted Stock, performance unit, performance share or other incentive award
granted by the Committee to a Participant under the Plan pursuant to such terms
and conditions as the Committee may establish. An Award may be granted singly,
in combination or in the alternative.
2.3 "Award Notice" means a written notice from the Company to a
Participant that sets forth the terms and conditions of an Award in addition to
those established by this Plan and by the Committee's exercise of its
administrative powers.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Cause" means (i) the willful and continued failure by a Core
Employee to substantially perform his duties with his employer after written
warnings specifically identifying the lack of substantial performance are
delivered to him by his employer, or (ii) the willful engaging by a Core
Employee in illegal conduct which is materially and demonstrably injurious to
the Company or a Subsidiary.
2.6 "Change in Control" shall be deemed to have occurred at such time
as (i) any "person" within the meaning of Section 14(d) of the Exchange Act,
other than the Company, a Subsidiary, or any employee benefit plan or plans
sponsored by the Company or any Subsidiary, is or has become the "beneficial
owner," as defined in Rule 13d-3 under the Exchange Act, directly or indirectly,
of twenty percent (20%) or more of the combined voting power of the outstanding
securities of the Company ordinarily having the right to vote at the election of
directors, or (ii) approval by the stockholders of the Company of (a) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of stock of the
Company would be converted into cash, securities or other property, other than a
consolidation or merger of the Company in which the common stockholders of the
Company immediately prior to the consolidation or merger have substantially the
same proportionate ownership of common stock of the surviving corporation
immediately after the consolidation or merger as immediately before, or (b) any
consolidation or merger in which the Company is the continuing or surviving
corporation but in which the common stockholders of the Company immediately
prior to the consolidation or merger do not hold at least a majority of the
outstanding common stock of the continuing or surviving corporation (except
where such holders of Common Stock hold at least a majority of the common stock
of the corporation which owns all of the Common Stock of the Company), or (c)
any sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of the Company, or
(iii) individuals who constitute the Board on January 1, 1997 (the "Incumbent
Board") have ceased for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to January 1, 1997 whose
election, or nomination for election by the Company's stockholders, was approved
by a vote of at least three-quarters ( 3/4) of the directors comprising the
Incumbent Board (either by specific vote or by approval of the proxy statement
of the Company in which such person is named as nominee for director without
objection to such nomination) shall be, for purposes of this Plan, considered as
though such person were a member of the Incumbent Board.
2.7 "Change in Control Price" means, in respect of a Change in Control,
the highest closing price per share paid for the purchase of Common Stock on the
New York Stock Exchange, another national stock exchange or the National
Association of Securities Dealers Automated Quotation System during the ninety
(90) day period ending on the date the Change in Control occurs, and in respect
of a Change in Ownership, the highest closing price per share paid for the
purchase of Common Stock on the New York Stock Exchange, another national stock
exchange or the National Association of Securities Dealers Automated Quotation
System during the ninety (90) day period ending on the date the Change in
Ownership occurs.
2.8 "Change in Ownership" means a change which results directly or
indirectly in the Company's Common Stock ceasing to be actively traded on a
national securities exchange or the National Association of Securities Dealers
Automated Quotation System.
2.9 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.10 "Committee" means the Compensation Committee of the Board, or such
other committee designated by the Board, authorized to administer the Plan. The
Committee shall consist of not less than two (2) members of the Board, each of
whom shall be a Disinterested Board Member. A "Disinterested Board Member" means
a member who (a) is not a current employee of the Company or a Subsidiary, (b)
is not a former employee of the Company or a Subsidiary who receives
compensation for prior services (other than benefits under a tax-qualified
retirement plan) during the taxable year, (c) has not been an officer of the
Company (d) does not receive remuneration from the Company or a Subsidiary,
either directly or indirectly, in any capacity other than as a director and (e)
does not possess an interest in any other transaction, and is not engaged in a
business relationship, for which disclosure would be required pursuant to Item
404(a) or (b) of Regulation S-K under the Securities Act of 1933, as amended.
The term Disinterested Board Member shall be interpreted in such manner as shall
be necessary to conform to the requirements of Section 162(m) of the Code and
Rule 16b-3 promulgated under the Exchange Act.
2.11 "Common Stock" means the common stock of the Company.
2.12 "Company" means National Fuel Gas Company.
2.13 "Core Employee" means an officer or other core management employee
of the company or a Subsidiary as determined by the Committee. Every Key
Management Employee is also a Core Employee.
2.14 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
2.15 "Fair Market Value" of a share of Common Stock on any date means
the average of the high and low sales prices of a share of Common Stock as
reflected in the report of consolidated trading of New York Stock
Exchange-listed securities for that date (or, if no such shares were publicly
traded on that date, the next preceding date that such shares were so traded)
published in The Wall Street Journal or in any other publication selected by the
Committee; provided, however, that if shares of Common Stock shall not have been
publicly traded for more than ten (10) days immediately preceding such date,
then the Fair Market Value of a share of Common Stock shall be determined by the
Committee in such manner as it may deem appropriate.
2.16 "Good Reason" means a good faith determination made by a
Participant that there has been any (i) material change by the Company of the
Participant's functions, duties or responsibilities which change could cause the
Participant's position with the Company to become of less dignity,
responsibility, importance, prestige or scope, including, without limitation,
the assignment to the Participant of duties and responsibilities inconsistent
with his positions, (ii) assignment or reassignment by the Company of the
Participant without the Participant's consent, to another place of employment
more than 30 miles from the Participant's current place of employment, or (iii)
reduction in the Participant's total compensation or benefits or any component
thereof, provided in each case that the Participant shall specify the event
relied upon for such determination by written notice to the Board at any time
within six months after the occurrence of such event.
2.17 "Key Management Employee" means a management employee of the
Company or a Subsidiary (i) who has significant policymaking responsibilities,
and (ii) whose current base salary at the time an Award is issued is among the
highest two percent (2%) of the current base salaries of all the employees of
the Company or any Subsidiary, all as determined by the Committee.
2.18 "Participant" means any individual to whom an Award has been
granted by the Committee under this Plan.
2.19 "Plan" means the National Fuel Gas Company 1997 Award and Option
Plan.
2.20 "Restricted Stock" means an Award granted pursuant to paragraph 10
hereof.
2.21 "Subsidiary" means a corporation or other business entity in which
the Company directly or indirectly has an ownership interest of eighty percent
(80%) or more.
2.22 "Unit" means a bookkeeping entry used by the Company to record and
account for the grant of the following Awards until such time as the Award is
paid, cancelled, forfeited or terminated, as the case may be: Units of Common
Stock, performance units, and performance shares which are expressed in terms of
Units of Common Stock.
3. Administration
The Plan shall be administered by the Committee. The Committee shall
have the authority to: (a) interpret the Plan; (b) establish such rules and
regulations as it deems necessary for the proper administration of the Plan; (c)
select Key Management Employees and Core Employees to receive Awards under the
Plan; (d) determine the form of an Award, whether a stock option, stock
appreciation right, Restricted Stock, performance unit, performance share, or
other incentive award established by the Committee in accordance with (h) below,
the number of shares or Units subject to the Award, all the terms and conditions
of an Award, including the time and conditions of exercise or vesting; (e)
determine whether Awards would be granted singly, in combination or in the
alternative; (f) grant waivers of Plan terms and conditions, provided that any
such waiver granted to an executive officer of the Company shall not be
inconsistent with Section 16 of the Exchange Act and the rules promulgated
thereunder; (g) accelerate the vesting, exercise or payment of any Award or the
performance period of an Award when any such action would be in the best
interest of the Company; (h) establish such other types of Awards, besides those
specifically enumerated in paragraph 2.2 hereof, which the Committee determines
are consistent with the Plan's purposes; and (i) take any and all other action
it deems advisable for the proper administration of the Plan. The Committee
shall also have the authority to grant Awards in replacement of Awards
previously granted under this Plan or any other executive compensation or stock
option plan of the Company or a Subsidiary. All determinations of the Committee
shall be made by a majority of its members, and its determinations shall be
final, binding and conclusive. The Committee, in its discretion, may delegate
its authority and duties under the Plan to the Chief Executive Officer or to
other senior officers of the Company to the extent permitted by Section 16 of
the Exchange Act and notwithstanding any other provision of this Plan or an
Award Notice, under such conditions as the Committee may establish; provided,
however, that only the Committee may select and grant Awards and render other
decisions as to the timing, pricing and amount of Awards to Participants who are
subject to Section 16 of the Exchange Act.
4. Eligibility
Any Core Employee is eligible to become a Participant of the Plan who
receives Stock Options only. A Key Management Employee is also eligible to
become a Participant of the Plan who receives other awards under the Plan.
5. Shares Available
(a) The maximum number of shares of Common Stock, $1.00 par value, of
the Company which shall be available for grant of Awards under the Plan
(including incentive stock options) during its term shall not exceed 3,800,000;
subject to adjustment as provided in paragraph 18. Awards covering no more than
300,000 shares of Common Stock of the Company may be granted to any Participant
in any fiscal year subject to adjustment as provided in paragraph 18. Of the
1,900,000 shares which were made available by the Plan amendment approved at the
2000 Annual Meeting of Stockholders, 1,200,000 of such shares will be available
only for awards of stock options.
(b) Any shares of Common Stock related to Awards which terminate by
expiration, forfeiture, cancellation or otherwise without the issuance of such
shares, are settled in cash in lieu of Common Stock, or are exchanged with the
Committee's permission for Awards not involving Common Stock, shall be available
again for grant under the Plan, provided, however, that if dividends or dividend
equivalents pursuant to paragraph 14, or other benefits of share ownership (not
including the right to vote the shares) have been received by the Participant in
respect of an Award prior to such termination, settlement or exchange, the
shares which were the subject of the Award shall not again be available for
grant under the Plan. Further, any shares of Common Stock which are used by a
Participant for the full or partial payment to the Company of the purchase price
of shares of Common Stock upon exercise of a stock option, or for any
withholding taxes due as a result of such exercise, shall again be available for
Awards under the Plan. Similarly, shares of Common Stock with respect to which
an Alternative SAR has been exercised and paid in cash shall again be available
for grant under the Plan. Shares to which independent or combination SARs relate
shall not count against the 3,800,000 share limit set forth in this paragraph 5.
(c) The shares of Common Stock available for issuance under the Plan
may be authorized and unissued shares or treasury shares.
6. Term
The Plan shall become effective as of December 13, 1996 subject to its
approval by the Company's stockholders at the 1997 Annual Meeting of
Stockholders and subject to the approval of the Securities and Exchange
Commission under the Public Utility Holding Company Act of 1935, as amended. No
Awards shall be exercisable or payable before these approvals of the Plan have
been obtained and all Awards made prior to approval of the Plan by the Company's
stockholders and approval of the Plan by the Securities and Exchange Commission
under the Public Utility Holding Company Act of 1935, as amended, are contingent
upon such approval. Awards shall not be granted pursuant to the Plan after
December 12, 2006.
7. Participation
The Committee shall select Participants, determine the type of Awards
to be made, and establish in the related Award Notices the applicable terms and
conditions of the Awards in addition to those set forth in this Plan and the
administrative rules issued by the Committee.
8. Stock Options
(a) Grants. Awards may be granted in the form of stock options. These
stock options may be incentive stock options within the meaning of Section 422
of the Code or non-qualified stock options (i.e., stock options which are not
incentive stock options), or a combination of both.
(b) Terms and Conditions of Options. Unless the Award Notice provides
otherwise, an option shall be exercisable in whole or in part. The price at
which Common Stock may be purchased upon exercise of a stock option shall be
established by the Committee, but such price shall not be less than the Fair
Market Value of the Common Stock on the date of the stock option's grant. The
Committee shall not have the authority to decrease such price after the date of
the stock option's grant, except for adjustments appropriate to reflect a Common
Stock dividend, stock split, reverse stock-split or other combination pursuant
to Section 18(a). An Award Notice evidencing a stock option may, in the
discretion of the Committee, provide that a Participant who pays the option
price of a stock option by an exchange of shares of Common Stock previously
owned by the Participant shall automatically be issued a new stock option to
purchase additional shares of Common Stock equal to the number of shares of
Common Stock so exchanged. Such new stock option shall have an option price
equal to the Fair Market Value of the Common Stock on the date such new stock
option is issued and shall be subject to such other terms and conditions as the
Committee deems appropriate. Unless the Award Notice provides otherwise, each
incentive stock option shall first become exercisable on the first anniversary
of its date of grant, and each non-qualified stock option shall first become
exercisable on the first anniversary of its date of grant, or, if earlier (i) on
the date of the Participant's death occurring after the date of grant, (ii) six
months after the date of grant, if the Participant has voluntarily resigned on
or after his 60th birthday, after the date of grant, and before such six months,
or (iii) on the date of the Participant's voluntary resignation on or after his
60th birthday and at least six months after the date of grant. Unless the Award
Notice provides otherwise, each non-qualified stock option shall expire on the
day after the tenth anniversary of its date of grant, and incentive stock
options and non-qualified stock options granted in combination may be exercised
separately.
(c) Restrictions Relating to Incentive Stock Options. Stock options
issued in the form of incentive stock options shall, in addition to being
subject to all applicable terms and conditions established by the Committee,
comply with Section 422 of the Code. Accordingly, the aggregate Fair Market
Value (determined at the time the option was granted) of the Common Stock with
respect to which incentive stock options are exercisable for the first time by a
Participant during any calendar year (under this Plan or any other plan of the
Company or any of its Subsidiaries) shall not exceed $100,000 (or such other
limit as may be required by the Code). Unless the Award Notice provides a
shorter period, each incentive stock option shall expire on the tenth
anniversary of its date of grant. The number of shares of Common Stock that
shall be available for incentive stock options granted under the Plan is
3,800,000.
(d) Exercise of Option. Upon exercise, the option price of a stock
option may be paid in cash, shares of Common Stock, shares of Restricted Stock,
a combination of the foregoing, or such other consideration as the Committee may
deem appropriate. The Committee shall establish appropriate methods for
accepting Common Stock, whether restricted or unrestricted, and may impose such
conditions as it deems appropriate on the use of such Common Stock to exercise a
stock option. The Committee, in its sole discretion, may establish procedures
whereby a Participant to the extent permitted by and subject to the requirements
of Rule 16b-3 under the Exchange Act, Regulation T issued by the Board of
Governors of the Federal Reserve System pursuant to the Exchange Act, federal
income tax laws, and other federal, state and local tax and securities laws, can
exercise an option or a portion thereof without making a direct payment of the
option price to the Company. If the Committee so elects to establish a cashless
exercise program, the Committee shall determine, in its sole discretion and from
time to time, such administrative procedures and policies as it deems
appropriate. Such procedures and policies shall be binding on any Participant
wishing to utilize the cashless exercise program.
9. Stock Appreciation Rights
(a) Grants and Valuation. Awards may be granted in the form of stock
appreciation rights ("SARs"). SARs may be granted singly ("Independent SARs"),
in combination with all or a portion of a related stock option under the Plan
("Combination SARs"), or in the alternative ("Alternative SARs"). Combination or
Alternative SARs may be granted either at the time of the grant of related stock
options or at any time thereafter during the term of the stock options.
Combination SARs shall be subject to paragraph 9(b) hereof. Alternative SARs
shall be subject to paragraph 9(c) hereof. Independent SARs shall be subject to
paragraph 9(d) hereof. Unless this Plan or the Award Notice provides otherwise,
SARs shall entitle the recipient to receive a payment equal to the appreciation
in the Fair Market Value of a stated number of shares of Common Stock from the
award date to the date of exercise. Once a SAR has been issued, the Committee
shall not reprice the SAR by changing the initial Fair Market Value from which
the payment is calculated except for adjustments appropriate to reflect a Common
Stock dividend, stock split, reverse stock-split or other combination pursuant
to Section 18(a). In the case of SARs granted in combination with, or in the
alternative to, stock options, the appreciation in value is from the option
price of such related stock option to the Fair Market Value on the date of
exercise of such SARs. Unless this Plan or the Award Notice provides otherwise,
SARs granted in conjunction with stock options shall be Combination SARs, and
all SARs shall be exercisable between one year and ten years and one day after
the date of their award.
(b) Terms and Conditions of Combination SARs. Both the stock options
granted in conjunction with Combination SARs and the Combination SARs may be
exercised. Combination SARs shall be exercisable only to the extent the related
stock option is exercisable, and the base from which the value of the
Combination SARs is measured at its exercise shall be the option price of the
related stock option. Combination SARs may be exercised either together with the
related stock option or separately. If a Participant exercises a Combination SAR
or related stock option, but not both, the other shall remain outstanding and
shall remain exercisable during the entire exercise period.
(c) Terms and Conditions of Alternative SARs. Either the stock options
granted in the alternative to Alternative SARs or the Alternative SARs may be
exercised, but not both. Alternative SARs shall be exercisable only to the
extent that the related stock option is exercisable, and the base from which the
value of the Alternative SARs is measured at its exercise shall be the option
price of the related stock option. If related stock options are exercised as to
some or all of the shares covered by the Award, the related Alternative SARs
shall be cancelled automatically to the extent of the number of shares covered
by the stock option exercise. Upon exercise of Alternative SARs as to some or
all of the shares covered by the Award, the related stock option shall be
cancelled automatically to the extent of the number of shares covered by such
exercise, and such shares shall again be eligible for grant in accordance with
paragraph 5 hereof.
(d) Terms and Conditions of Independent SARs. Independent SARs shall be
exercisable in whole or in such installments and at such time as may be
determined by the Committee. The base price from which the value of an
Independent SAR is measured shall also be determined by the Committee; provided,
however, that such price shall not be less than the Fair Market Value of the
Common Stock on the date of the grant of the Independent SAR.
(e) Deemed Exercise. The Committee may provide that a SAR shall be
deemed to be exercised at the close of business on the scheduled expiration date
of such SAR, if at such time the SAR by its terms remains exercisable and, if so
exercised, would result in a payment to the holder of such SAR.
10. Restricted Stock
(a) Grants. Awards may be granted in the form of Restricted Stock.
Shares of Restricted Stock shall be awarded in such amounts and at such times
during the term of the Plan as the Committee shall determine.
(b) Award Restrictions. Restricted Stock shall be subject to such terms
and conditions as the Committee deems appropriate, including restrictions on
transferability and continued employment. No more than 50,000 restricted shares
may be issued in a single fiscal year. The Committee may modify or accelerate
the delivery of shares of Restricted Stock under such circumstances as it deems
appropriate.
(c) Rights as Stockholders. During the period in which any shares of
Restricted Stock are subject to the restrictions imposed under paragraph 10(b),
the Committee may, in its discretion, grant to the Participant to whom shares of
Restricted Stock have been awarded all or any of the rights of a stockholder
with respect to such shares, including, but not by way of limitation, the right
to vote such shares and to receive dividends.
(d) Evidence of Award. Any shares of Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee deems appropriate,
including, without limitation, book-entry registration or issuance of a stock
certificate or certificates.
11. Performance Units
(a) Grants. Awards may be granted in the form of performance units.
Performance units shall refer to the Units valued by reference to designated
criteria established by the Committee, other than Units which are expressed in
terms of Common Stock.
(b) Performance or Service Criteria. Performance units shall be
contingent on the attainment during a performance period of certain performance
and/or service objectives. The length of the performance period, the performance
or service objectives to be achieved, and the extent to which such objectives
have been attained shall be conclusively determined by the Committee in the
exercise of its absolute discretion. Performance and service objectives may be
revised by the Committee during the performance period, in order to take into
consideration any unforeseen events or changes in circumstances.
12. Performance Shares
(a) Grants. Awards may be granted in the form of performance shares.
Performance shares shall refer to shares of Common Stock or Units which are
expressed in terms of Common Stock, including shares of phantom stock.
(b) Performance or Service Criteria. Performance shares shall be
contingent upon the attainment during a performance period of certain
performance or service objectives. The length of the performance period, the
performance or service objectives to be achieved, and the extent to which such
objectives have been attained shall be conclusively determined by the Committee
in the exercise of its absolute discretion. Performance and service objectives
may be revised by the Committee during the performance period, in order to take
into consideration any unforeseen events or changes in circumstances.
13. Payment of Awards
At the discretion of the Committee, payment of Awards may be made in
cash, Common Stock, a combination of cash and Common Stock, or any other form of
property as the Committee shall determine.
14. Dividends and Dividend Equivalents
If an Award is granted in the form of Restricted Stock, stock options,
or performance shares, or in the form of any other stock-based grant, the
Committee may, at any time up to the time of payment, include as part of an
Award an entitlement to receive dividends or dividend equivalents, subject to
such terms and conditions as the Committee may establish. Dividends and dividend
equivalents shall be paid in such form and manner (i.e., lump sum or
installments), and at such time as the Committee shall determine. All dividends
or dividend equivalents which are not paid currently may, at the Committee's
discretion, accrue interest, be reinvested into additional shares of Common
Stock or, in the case of dividends or dividend equivalents credited in
connection with performance shares, be credited as additional performance shares
and paid to the Participant if and when, and to the extent that, payment is made
pursuant to such Award.
15. Deferral of Awards
At the discretion of the Committee, the receipt of the payment of
shares of Restricted Stock, performance shares, performance units, dividends,
dividend equivalents, or any portion thereof, may be deferred by a Participant
until such time as the Committee may establish. All such deferrals shall be
accomplished by the delivery of a written, irrevocable election by the
Participant prior to such time payment would otherwise be made, on a form
provided by the Company. Further, all deferrals shall be made in accordance with
administrative guidelines established by the Committee to ensure that such
deferrals comply with all applicable requirements of the Code and its
regulations. Deferred payments shall be paid in a lump sum or installments, as
determined by the Committee. The Committee may also credit interest, at such
rates to be determined by the Committee, on cash payments that are deferred and
credit dividends or dividend equivalents on deferred payments denominated in the
form of Common Stock.
16. Termination of Employment
(a) General Rule. Subject to paragraph 20, if a Participant's
employment with the Company or a Subsidiary terminates for a reason other than
death, disability, retirement, or any approved reason, all unexercised, unearned
or unpaid Awards shall be cancelled or forfeited as the case may be, unless
otherwise provided in this paragraph or in the Participant's Award Notice. The
Committee shall have the authority to promulgate rules and regulations to (i)
determine what events constitute disability, retirement, or termination for an
approved reason for purposes of the Plan, and (ii) determine the treatment of a
Participant under the Plan in the event of his death, disability, retirement, or
termination for an approved reason.
(b) Incentive Stock Options. Unless the Award Notice provides
otherwise, any incentive stock option which has not theretofore expired, shall
terminate upon termination of the Participant's employment with the Company
whether by death or otherwise, and no shares of Common Stock may thereafter be
purchased pursuant to such incentive stock option, except that:
(i) Upon termination of employment (other than by death), a
Participant may, within three months after the date of termination of
employment, purchase all or part of any shares of Common Stock which
the Participant was entitled to purchase under such incentive stock
option on the date of termination of employment.
(ii) Upon the death of any Participant while employed with the
Company or within the three-month period referred to in paragraph
16(b)(i) above, the Participant's estate or the person to whom the
Participant's rights under the incentive stock option are transferred
by will or the laws of descent and distribution may, within one year
after the date of the Participant's death, purchase all or part of any
shares of Common Stock which the Participant was entitled to purchase
under such incentive stock option on the date of death.
Notwithstanding anything in this paragraph 16(b) to the contrary, the
Committee may at any time within the three-month period after the date of
termination of a Participant's employment, with the consent of the Participant,
the Participant's estate or the person to whom the Participant's rights under
the incentive stock options are transferred by will or the laws of descent and
distribution, extend the period for exercise of the Participant's incentive
stock options to any date not later than the date on which such incentive stock
options would have otherwise expired absent such termination of employment.
Nothing in this paragraph 16(b) shall authorize the exercise of an incentive
stock option after the expiration of the exercise period therein provided, nor
later than ten years after the date of grant.
(c) Non-Qualified Stock Options. Unless the Award Notice provides
otherwise, any nonqualified stock option which has not theretofore expired shall
terminate upon termination of the Participant's employment with the Company, and
no shares of Common Stock may thereafter be purchased pursuant to such
non-qualified stock option, except that:
(i) Upon termination of employment for any reason other than
death, discharge by the Company for cause, or voluntary resignation of
the Participant prior to age 60, a Participant may, within five years
after the date of termination of employment, or any such greater period
of time as the Committee, in its sole discretion, deems appropriate,
exercise all or part of the non-qualified stock option which the
Participant was entitled to exercise on the date of termination of
employment or subsequently becomes eligible to exercise pursuant to
paragraph 8(b) above.
(ii) Upon the death of a Participant while employed with the
Company or within the period referred to in paragraph 16(c)(i) above,
the Participant's estate or the person to whom the Participant's rights
under the non-qualified stock option are transferred by will or the
laws of descent and distribution may, within five years after the date
of the Participant's death while employed, or within the period
referred to in paragraph 16(c)(i) above, exercise all or part of the
non-qualified stock option which the Participant was entitled to
exercise on the date of death.
Nothing in this paragraph 16(c) shall authorize the exercise of a
non-qualified stock option later than the exercise period set forth in the Award
Notice.
17. Nonassignability
No Award under the Plan shall be subject in any manner to alienation,
anticipation, sale, transfer (except by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order), assignment,
pledge, or encumbrance, except that, unless the Committee specifies otherwise,
all awards of non-qualified stock options or SARs shall be transferable without
consideration, subject to all the terms and conditions to which such
non-qualified stock options or SARs are otherwise subject, to (i) members of a
Participant's immediate family as defined in Rule 16a-1 promulgated under the
Exchange Act, or any successor rule or regulation, (ii) trusts for the exclusive
benefit of the Participant or such immediate family members or (iii) entities
which are wholly-owned by the Participant or such immediate family members,
provided that (x) there may be no consideration for any such transfer, and (y)
subsequent transfers of transferred options shall be prohibited except those by
will or the laws of descent and distribution. Following transfer, any such
options shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, and except as provided in the next
sentence, the term "Participant" shall be deemed to refer to the transferee. The
events of termination of employment of Section 16(c) hereof shall continue to be
applied with reference to the original Participant and following the termination
of employment of the original Participant, the options shall be exercisable by
the transferee only to the extent, and for the periods specified in Section
16(c), that the original Participant could have exercised such option. Except as
expressly permitted by this paragraph, an Award shall be exercisable during the
Participant's lifetime only by him.
18. Adjustment of Shares Available
(a) Changes in Stock. In the event of changes in the Common Stock by
reason of a Common Stock dividend, stock split, reverse stock-split or other
combination, appropriate adjustment shall be made by the Committee in the
aggregate number of shares available under the Plan, the number of shares with
respect to which Awards may be granted to any Participant in any fiscal year,
and the number of shares, SARs, performance shares, Common Stock units and other
stock-based interests subject to outstanding Awards, without, in the case of
stock options, causing a change in the aggregate purchase price to be paid
therefor. Such proper adjustment as may be deemed equitable may be made by the
Committee in its discretion to give effect to any other change affecting the
Common Stock.
(b) Changes in Capitalization. In case of a merger or consolidation of
the Company with another corporation, a reorganization of the Company, a
reclassification of the Common Stock of the Company, a spinoff of a significant
asset, or other changes in the capitalization of the Company, appropriate
provision shall be made for the protection and continuation of any outstanding
Awards by either (i) the substitution, on an equitable basis, of appropriate
stock or other securities or other consideration to which holders of Common
Stock of the Company will be entitled pursuant to such transaction or succession
of transactions, or (ii) by appropriate adjustment in the number of shares
issuable pursuant to the Plan, the number of shares covered by outstanding
Awards, the option price of outstanding stock options, the exercise price of
outstanding SARs, the performance or service criteria or performance period of
outstanding performance units, and the performance or service criteria or
performance period of outstanding performance shares, as deemed appropriate by
the Committee.
19. Withholding Taxes
The Company shall be entitled to deduct from any payment under the
Plan, regardless of the form of such payment, the amount of all applicable
income and employment taxes required by law to be withheld with respect to such
payment or may require the participant to pay to it such tax prior to and as a
condition of the making of such payment. Subject to the administrative
guidelines established by the Committee, a Participant may pay the amount of
taxes required by law to be withheld from an Award, in whole or in part, by
requesting that the Company withhold from any payment of Common Stock due as a
result of such Award, or by delivering to the Company, shares of Common Stock
having a Fair Market Value less than or equal to the amount of such required
withholding taxes.
20. Noncompetition Provision
Notwithstanding anything contained in this Plan to the contrary, unless
the Award Notice specifies otherwise, a Participant shall forfeit all
unexercised, unearned, and/or unpaid Awards, including Awards earned but not yet
paid, all unpaid dividends and dividend equivalents, and all interest, if any,
accrued on the foregoing if, (i) in the opinion of the Committee, the
Participant, without the written consent of the Company, engages directly or
indirectly in any manner or capacity as principal, agent, partner, officer,
director, employee, or otherwise, in any business or activity competitive with
the business conducted by the Company or any Subsidiary; or (ii) the Participant
performs any act or engages in any activity which in the opinion of the
Committee is inimical to the best interests of the Company. In addition, the
Committee may, in its discretion, condition the deferral of any Award, dividend,
or dividend equivalent under paragraph 15 hereof on a Participant's compliance
with the terms of this paragraph 20, and cause such a Participant to forfeit any
payment which is so deferred if the Participant fails to comply with the terms
hereof.
21. Amendments to Awards
The Committee may at any time unilaterally amend any unexercised,
unearned, or unpaid Award, including Awards earned but not yet paid, to the
extent it deems appropriate; provided, however, that any such amendment which is
adverse to the Participant shall require the Participant's consent.
22. Regulatory Approvals and Listings
Notwithstanding anything contained in this Plan to the contrary, the
Company shall have no obligation to issue or deliver certificates of Common
Stock evidencing Awards resulting in the payment of Common Stock prior to (a)
the obtaining of any approval from any governmental agency which the Company
shall, in its sole discretion, determine to be necessary or advisable, (b) the
admission of such shares to listing on the stock exchange on which the Common
Stock may be listed, and (c) the completion of any registration or other
qualification of said shares under any state or federal law or ruling of any
governmental body which the Company shall, in its sole discretion, determine to
be necessary or advisable.
23. No Right to Continued Employment or Grants
Participation in the Plan shall not give any Participant any right to
remain in the employ of the Company or any Subsidiary. The Company or, in the
case of employment with a Subsidiary, the Subsidiary, reserves the right to
terminate any Participant at any time. Further, the adoption of this Plan shall
not be deemed to give any person any right to be selected as a Participant or to
be granted an Award.
24. Amendment
The Board may suspend or terminate the Plan at any time. In addition,
the Board may, from time to time, amend the Plan in any manner, provided
however, that any such amendment may be subject to stockholder approval (i) at
the discretion of the Board and (ii) to the extent that shareholder approval may
be required by law, including, but not limited to, the requirements of Rule
16b-3 under the Exchange Act, or any successor rule or regulation.
25. Change in Control and Change in Ownership
(a) Background. All Participants shall be eligible for the treatment
afforded by this paragraph 25 if there is a Change in Ownership or if their
employment terminates within two years following a Change in Control, unless the
termination is due to (i) death; (ii) disability entitling the Participant to
benefits under his employer's long-term disability plan; (iii) Cause; (iv)
resignation by the Participant other than for Good Reason; or (v) retirement
entitling the Participant to benefits under his employer's retirement plan.
(b) Vesting and Lapse of Restrictions. If a Participant is eligible for
treatment under this paragraph 25, (i) all of the terms and conditions in effect
on any unexercised, unearned, unpaid or deferred Awards shall immediately lapse
as of the Acceleration Date; (ii) no other terms or conditions shall be imposed
upon any Awards on or after such date, and in no event shall any Award be
forfeited on or after such date; and (iii) all of his unexercised, unvested,
unearned and/or unpaid Awards or any other outstanding Awards shall
automatically become one hundred percent (100%) vested immediately upon such
date.
(c) Dividends and Dividend Equivalents. If a Participant is eligible
for treatment under this paragraph 25, all unpaid dividends and dividend
equivalents and all interest accrued thereon, if any, shall be treated and paid
under this paragraph 25 in the identical manner and time as the Award under
which such dividends or dividend equivalents have been credited. For example, if
upon a Change in Ownership, an Award under this paragraph 25 is to be paid in a
prorated fashion, all unpaid dividends and dividend equivalents with respect to
such Award shall be paid according to the same formula used to determine the
amount of such prorated Award.
(d) Treatment of Performance Units and Performance Shares. If a
Participant holding either performance units or performance shares is eligible
for treatment under this paragraph 25, the provisions of this paragraph (d)
shall determine the manner in which such performance units and/or performance
shares shall be paid to him. For purposes of making such payment, each "current
performance period" (defined to mean a performance period or term of a
performance unit or performance share which period or term has commenced but not
yet ended), shall be treated as terminating upon the Acceleration Date, and for
each such "current performance period" and each "completed performance period"
(defined to mean a performance period or term of a performance unit or
performance share which has ended but for which the Committee has not, on the
Acceleration Date, made a determination as to whether and to what degree the
performance or service objectives for such period have been attained), it shall
be assumed that the performance or service objectives have been attained at a
level of one hundred percent (100%) or the equivalent thereof. If the
Participant is participating in one or more "current performance periods," he
shall be considered to have earned and, therefore, to be entitled to receive, a
prorated portion of the Awards previously granted to him for each such
performance period. Such prorated portion shall be determined by multiplying the
number of performance shares or performance units, as the case may be, granted
to the Participant by a fraction, the numerator of which is the total number of
whole and partial years (with each partial year being treated as a whole year)
that have elapsed since the beginning of the performance period, and the
denominator of which is the total number of years in such performance period. A
Participant in one or more "completed performance periods" shall be considered
to have earned and, therefore, be entitled to receive all the performance shares
and performance units previously granted to him during each performance period.
(e) Valuation of Awards. If a Participant is eligible for treatment
under this paragraph 25, his Awards (including those earned as a result of the
application of paragraph 25(d) above) shall be valued and cashed out on the
basis of the Change in Control Price.
(f) Payment of Awards. If a Participant is eligible for treatment under
this paragraph 25, whether or not he is still employed by the Company or a
Subsidiary, he shall be paid, in a single lump sum cash payment, as soon as
practicable but in no event later than 90 days after the Acceleration Date, for
all outstanding Units of Common Stock, Independent and Combination SARs, stock
options (including incentive stock options), performance units (including those
earned as a result of the application of paragraph 25(d) above), and performance
shares (including those earned as a result of paragraph 25(d) above), and all
other outstanding Awards, including those granted by the Committee pursuant to
its authority under paragraph 3(h) hereof.
(g) Deferred Awards. If a Participant is eligible for treatment under
this paragraph 25, all deferred Awards for which payment has not been received
as of the Acceleration Date shall be paid in a single lump sum cash payment as
soon as practicable, but in no event later than 90 days after such date. For
purposes of making such payment, the value of all Awards which are stock-based
shall be determined by the Change in Control Price.
(h) Miscellaneous. Upon a Change in Control or a Change in Ownership,
(i) the provisions of paragraphs 16, 20 and 21 hereof shall become null and void
and of no force and effect insofar as they apply to a Participant who has been
terminated under the conditions described in (a) above; and (ii) no action shall
be taken which would affect the rights of any Participant or the operation of
the Plan with respect to any Award to which the Participant may have become
entitled hereunder on or prior to the date of the Change in Control or Change in
Ownership or to which he may become entitled as a result of such Change in
Control or Change in Ownership.
(i) Legal Fees. The Company shall pay all legal fees and related
expenses incurred by a Participant in seeking to obtain or enforce any payment,
benefit or right he may be entitled to under the Plan after a Change in Control
or Change in Ownership; provided, however, the Participant shall be required to
repay any such amounts to the Company to the extent a court of competent
jurisdiction issues a final and non-appealable order setting forth the
determination that the position taken by the Participant was frivolous or
advanced in bad faith.
26. No Right, Title or Interest in Company Assets
No Participant shall have any rights as a stockholder as a result of
participation in the Plan until the date of issuance of a stock certificate in
his name, and, in the case of Restricted Stock, stock options, performance
shares or any other stock-based grant, such rights are granted to the
Participant under paragraph 10(c) hereof. To the extent any person acquires a
right to receive payments from the Company under this Plan, such rights shall be
no greater than the rights of an unsecured creditor of the Company.
SEVERANCE AGREEMENT, RELEASE AND WAIVER
THIS AGREEMENT is made by and between National Fuel Gas Supply
Corporation, a Pennsylvania corporation having offices at 10 Lafayette Square,
Buffalo, New York 14203 ("National Fuel"), and Mr. Richard Hare, 110 Foxmeadow
Lane, Orchard Park, NY 14127 ("Mr. Hare") on March 27, 2000.
WHEREAS, National Fuel and Mr. Hare (each a "party" collectively, the
"parties") mutually desire that Mr. Hare shall retire from his positions with
National Fuel and its affiliates, and that each party shall receive certain
consideration, on the terms set out in this Severance Agreement, Release and
Waiver (this "Agreement");
THE PARTIES THEREFORE AGREE AS FOLLOWS:
1. As used within this Agreement, the terms "Company," "we," "our" or "us"
collectively refer to National Fuel and its parent, subsidiary and
affiliated companies, other related entities, and successors or
assigns. As used within this Agreement, the terms "Mr. Hare,"
"employee," "you" or "your" refers to Richard Hare.
2. You hereby resign, effective March 31, 2000, any and all positions as
an officer, director, employee or equivalent of any Company entity.
Your separation from employment is by mutual agreement between you and
the Company. Your employment with the Company will terminate on March
31, 2000.
3. The Company agrees to pay you, minus all applicable taxes and
withholdings, your regular pay and benefits up to and including March
31, 2000.
4. You have voluntarily decided to apply for early retirement and will
receive your accrued benefit under the terms of the National Fuel Gas
Company Retirement Plan (the "Retirement Plan") beginning April 1,
2000. The annual benefit that you will receive under the Retirement
Plan will be eighty-one thousand two hundred two and 63/100 dollars
($81,202.63), if you receive benefits in the form of a single life
annuity under the Retirement Plan, payable in equal monthly
installments. Your benefits will be reduced if you elect to receive a
different form of benefit under the Retirement Plan.
5. You may take any accrued vacation you desire in March 2000. As of
February 15, 2000, you had four weeks of vacation accrued. You will be
paid on or before the first business day which is at least eight days
after you sign this Agreement for vacation which had accrued but not
been used by March 31, 2000.
6. In complete satisfaction of all Company obligations under the National
Fuel Gas Company Executive Retirement Plan (the "ERP"), including any
obligations related to your December 1999 election to receive the lump
sum benefit under the ERP, the Company agrees to pay you, and you agree
to accept, the sum of one million two hundred ninety-eight thousand
forty dollars (US$1,298,040). Such payment shall be made to you by
check hand-delivered to you at 10 Lafayette Square on or before the
first business day which is at least eight days after you sign this
Agreement.
7. The Company agrees to pay you, by check mailed to your home address or
other location designated by you, the following sums:
(a) one hundred seventeen thousand four hundred four dollars
(US$117,404), on or before March 1, 2001;
(b) one hundred seventeen thousand four hundred four dollars
(US$117,404), on or before March 1, 2002;
(c) one hundred seventeen thousand four hundred four dollars
(US$117,404), on or before March 1, 2003;
(d) one hundred seventeen thousand four hundred four dollars
(US$117,404), on or before March 1, 2004; and
(e) one hundred seventeen thousand four hundred four dollars
(US$117,404), on or before March 1, 2005.
In the event of your death prior to March 1, 2005, any remaining
payments will be payable to your Estate when due.
8. (a) Beginning April 1, 2000, you will be entitled to family
medical coverage under the Company's Traditional Indemnity
Plan for non-bargaining unit retirees, as well as the
Prescription Drug Plan. The Company will withhold the retiree
medical contribution of $48 per month from your monthly
Retirement Plan benefit, which contribution rate will remain
in effect for the duration of your coverage.
(b) If you predecease your spouse, your spouse will be offered
COBRA continuation for medical and prescription drug coverage
under the Traditional Plan for a period of 36 months (or if
your death occurs prior to March 31, 2001, then through March
31, 2004) at the COBRA rates in effect from time to time. Such
COBRA coverage must be elected in order for your spouse to be
eligible for the Executive Medical Plan coverage continuation
described in paragraph 8(d), as the Executive Medical Plan
supplements the Traditional Indemnity Plan.
(c) Beginning April 1, 2000, the Company Dental Plan will be
available to you under COBRA for a period of 18 months at the
monthly COBRA rate of $75.32 for family coverage. However, you
(or after your death, your spouse) will be permitted to extend
your dental coverage beyond the 18-month period through March
31, 2004 as described in paragraph 8 (d).
(d) The Company will provide you, for the period beginning on
April 1, 2000, and ending on March 31, 2004, with family
medical, dental and prescription drug coverage under the
Company's Executive Medical Plan, under the same terms and
conditions as would be available had you remained employed by
the Company as an officer, except that in order to retain
supplemental dental coverage under the Executive Medical Plan
you must continue to pay the monthly Dental Plan COBRA premium
referenced in paragraph 8(c) for the duration of the period
hereunder. You will pay to the Company the same monthly
contributions for Executive Medical Plan coverage as are
required of active officers from time to time. In the event of
your death prior to March 31, 2004, the Company will provide
your spouse with the same Executive Medical Plan coverage on a
"single" basis for the balance of such period, subject to the
same terms and conditions, including her payment to the
Company of the same rate of contribution as in effect from
time to time for single coverage for active officers of the
Company. You (or after your death, your spouse) will be billed
monthly for the contributions due for such coverage and the
COBRA dental coverage should you elect it, and payment will be
due the Company within 30 days after the receipt of each bill.
(e) In order to obtain the coverage described in this paragraph,
you must complete, sign and return to the Company the COBRA
election forms to be furnished by the Company. Executive
Medical Plan and Dental Plan coverage will not be available
after March 31, 2004.
9. The Company agrees, upon the effective date of this Agreement, to
extend the time within which your outstanding stock appreciation rights
and nonqualified stock options may be exercised, to the full extent of
the original term of each such award, notwithstanding your retirement.
The Company hereby offers to convert, upon the effective date of this
Agreement, your outstanding incentive stock options to nonqualified
stock options, with the exercise period also extended as described in
the preceding sentence. The Company and you acknowledge and agree that
Section 20 of the National Fuel Gas Company 1993 and 1997 Award and
Option Plans presently gives the Company the right to forfeit any
unexercised, unearned or unpaid Awards under those plans (including
stock options, SARs and unvested restricted stock) if you perform any
act or engage in any activity which in the opinion of the Committee is
inimical to the best interests of the Company or if you engage in
certain competitive activity. The Company and you further agree that
you will be considered to have engaged in conduct that constitutes
grounds for the Company to exercise its right to forfeit unexercised,
unearned or unpaid Awards under those plans (including stock options,
SARs and the 4,492 shares of restricted stock scheduled to vest on
January 2, 2001 referred to in paragraph 10 of this Agreement) only if
you violate the provisions of paragraph 16(c), 17 or 19 of this
Agreement.
10. The Company agrees that your 4,492 shares of unvested restricted stock
will vest as scheduled on January 2, 2001, notwithstanding your
retirement (which would otherwise have caused a forfeiture of that
stock), subject only to potential forfeiture as described in paragraph
9 of this Agreement.
11. National Fuel hereby offers to sell you the 1999 Jeep, National Fuel
vehicle #32056, as is, without warranties of any kind other than such
manufacturer's warranties, if any, as can be passed on to you, for the
sum of twenty-seven thousand nine hundred twenty-five dollars
($27,925), payable in cash upon the tender to you of the signed
certificate of title and a signed receipt for the purchase price. You
will be responsible for payment of the sales tax on the purchase price
when you register the vehicle in your name. This offer will remain open
through April 15, 2000.
12. National Fuel represents and warrants that the Company has awarded to
you under the National Fuel Gas Company 1997 Award and Option Plan,
twenty-five thousand (25,000) stock options on the terms described in
the award letters attached as Exhibit 1. These options have been
awarded in consideration of your promises under this Agreement.
13. Regarding the Split Dollar Insurance Agreement by and among you, the
trustees of your life insurance trust and the Company dated August 9,
1999 (the "Split Dollar Agreement"), the Company and you acknowledge
and agree that the Company is not obligated to make, and shall not
make, the premium payment which would have been due April 1, 2000, if
you had not retired. The Split Dollar Agreement shall otherwise remain
in force according to its terms, except that you will be considered to
have engaged in "Competition" for the purposes of Section IVB of the
Split Dollar Agreement only if you violate the provisions of paragraph
17 of this Agreement. The Company and you acknowledge and agree that
your rights under the Split Dollar Agreement and the life insurance
policy referred to therein shall not be subject to forfeiture after
March 31, 2003.
14. In consideration for the promises set forth in paragraphs 5, 6 (to the
extent, if any, that the amount payable to you thereunder exceeds what
you would have been entitled to receive in the absence of this
Agreement) 7, 8(d) and 9 through 12 of this Agreement, you hereby
knowingly and voluntarily release and unconditionally waive any and all
demands, claims and causes of action, of whatever kind or nature, which
you ever had, now have or which you, your successors, assigns, heirs,
executors or administrators can, shall or may have for any reason as of
the date you execute this Agreement against the Company or any of the
Company's predecessors, successors, assigns, executors, administrators,
directors, officers, employees and agents (collectively "Releasees")
regarding your employment and its termination, including, but not
limited to:
(a) all demands, claims and causes of action for wages, benefits
(including benefits under the ERP), bonuses, severance pay,
perquisites, or back wages, benefits or bonuses other than set
forth in this Agreement or in any benefit plan, program or
policy of the Company not specifically referred to in this
Agreement;
(b) all demands, claims and causes of action under state or
federal civil rights and anti-discrimination laws, regulations
or orders, including Executive Order 11246, Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment
Act of 1967, the Americans with Disabilities Act of 1990 and
the New York Human Rights Law;
(c) all demands, claims and causes of action that your employment
or its termination violated any alleged contractual
relationship with the Company or was in any way unreasonable,
wrongful, or in violation of any Company policy; and
(d) all demands, claims and causes of action for mental, physical
or emotional distress or harm, or defamation relating in any
way to your employment or its termination.
15. In conjunction with the provisions of paragraph 14 herein, the Company
and you specifically acknowledge and agree that:
(a) you do not waive any claim which may arise after the execution
of this Agreement;
(b) but for this Agreement, you would not be entitled to the
severance pay and the other benefits set forth in paragraphs
5, 6 (to the extent, if any, that the amount payable to you
thereunder exceeds what you would have been entitled to
receive in the absence of this Agreement) 7, 8(d) and 9
through 12 of this Agreement;
(c) the Company has advised you to review the Agreement, and
specifically the release contained in paragraph 14 herein,
with your attorney prior to signing this Agreement;
(d) you and your attorney were given a working draft of this
Agreement on March 16, 2000 and you understand you may review
this Agreement for up to twenty-one (21) days before being
required to execute this Agreement. You and the Company agree
that the time period for you to consider this Agreement before
signing it will not be restarted if any changes, material or
non-material, are made to the Agreement after the date you
first received it.
(e) you may terminate this Agreement at any time within seven (7)
days after your execution of this Agreement. This Agreement
shall not become effective until the time to terminate it has
expired.
16. As a part of the consideration for the compensation provided in this
Agreement and for the other covenants made by National Fuel in this
Agreement, you agree to the following confidentiality provisions:
(a) You agree that the contents of this Agreement are confidential
and will not be disclosed to any third party, other than your
attorney, your wife, tax advisor, financial advisor(s), the
Internal Revenue Service, the New York State Tax Department or
the tax authority of any state or locality in which you are,
or may be, subject to income tax, unless you are compelled to
do so by a court having jurisdiction over such matter (in
which case you will notify the Company as soon as possible of
the activity and cooperate with the Company in seeking relief
from such compulsion) or as may be necessary in connection
with the enforcement of this Agreement. Notwithstanding the
previous sentence, you may disclose the provisions of this
paragraph 16 and paragraphs 17 and 19 hereof to any
prospective employer or any other person or entity for whom
you propose to provide services.
(b) You agree to return any and all corporate documents, records
or copies of the same, information or property in your
possession, except those relating to either your own
employment, such as payroll stubs and benefits statements, or
your shareholdings in the Company. Your performance of this
obligation is a condition precedent to your receipt of any
severance payments or other benefits under paragraphs 5, 6 (to
the extent, if any, that the amount payable to you thereunder
exceeds what you would have been entitled to receive in the
absence of this Agreement) 7, 8(d) and 9 through 12 of this
Agreement.
(c) You shall hold in a fiduciary capacity for the benefit of
National Fuel any and all of the Company's trade secrets and
confidential and proprietary information in your possession.
You shall not, without the prior written consent of National
Fuel Gas Company, unless compelled pursuant to an order of a
court or other body having jurisdiction over such matter (in
which case you will notify the Company as soon as possible of
the activity and cooperate with the Company in seeking relief
from such compulsion), at any time, utilize or communicate or
divulge to anyone other than the Company and those designated
by it, any of the Company's trade secrets and confidential and
proprietary information.
(d) The prohibition against your use of the Company's trade
secrets and confidential and proprietary information, other
than for the benefit of National Fuel, includes but is not
limited to the exploitation of any products or services that
embody or are derived from National Fuel's trade secrets or
confidential and proprietary information.
(e) You agree to comply with (i) any and all applicable laws and
regulations regarding your actions and omissions while in
possession of any material inside information about the
Company which you may have at any time; and (ii) any and all
confidentiality agreements that the Company entered into with
third parties, of which you were made aware during your
employment by the Company, under which the Company promised
that its Representatives (including you) would keep
confidential certain information described in those
confidentiality agreements.
(f) You represent, warrant and agree that you have no proprietary
or ownership rights or title to any of the Company's trade
secrets or confidential and proprietary information and no
legal right to use, disclose, disseminate, or publish any of
the Company's trade secrets or confidential and proprietary
information in any locality. You acknowledge that if you were
to work for or advise any entity in connection with a
potential acquisition of or merger with the Company, you would
in the course of that work inevitably use or disclose some of
the Company's trade secrets or confidential and proprietary
information.
(g) The Company's "trade secrets" and "confidential and
proprietary information" include, but are not limited to, any
and all memoranda, software, data bases, computer programs,
interface systems, pricing and client information, records and
"writings" as hereinafter defined pertaining to National
Fuel's methods or practices of doing business and marketing
its services and products, whether or not developed or
prepared by you during the term of your employment with
National Fuel. As used in the preceding sentence, the term
"writings" shall mean and include all works, expressed in
words, numbers or other verbal or numerical symbols,
regardless of the physical manner in which they are embodied,
including, but not limited, to books, articles, manuscripts,
memoranda, computer programs, computer software systems, maps,
charts, diagrams, technical drawings, manuals, video and audio
tape recordings, and photographs. Notwithstanding the
foregoing, the Company's trade secrets and confidential and
proprietary information shall mean only such information or
material not generally known to the public (other than by act
of you or your representatives in breach of this Agreement).
17. In order to protect and safeguard the Company's trade secrets and
confidential information, you agree that, during the period beginning
April 1, 2000 and ending March 31, 2003:
(a) you will not, directly or indirectly and without the prior
written consent of National Fuel Gas Company, engage in or be
interested in (as owner, partner, shareholder, employee,
director, agent, consultant or otherwise), any business which
is a "competitor" of the Company, as hereafter defined, except
as otherwise permitted under paragraph 17(c) below;
(b) for purposes of this Agreement, a "competitor" of the Company
is any corporation, sole proprietorship, partnership, joint
venture, syndicate, trust or any other form of organization or
parent, subsidiary or division of any of the foregoing, which,
during such period or the immediately preceding fiscal year of
such entity, was engaged in the transportation, purchase,
brokering, marketing, or trading of natural gas or other
energy products or services which are competitive to the
Company's products or services, any of which was engaged in
within 50 miles of the geographic area in which the Company is
engaged in such competitive business;
(c) the terms of this paragraph 17 shall not apply to:
(i) your present or future investments in the securities
of companies listed on a national securities exchange
or traded on the over-the-counter market to the
extent such investments do not exceed 2% of the total
outstanding shares of such company,
(ii) your employment with or rendering consulting services
to a competitor of the Company provided such
employment or consulting service is limited to areas
unrelated to the transportation, purchase, brokering,
marketing or trading of natural gas or other energy
products or services which are competitive to the
Company's products or services,
(iii) your employment with or rendering of consulting
services to a competitor of the Company provided such
employment or consulting service is limited to:
(A) public utility rate cases before state
utility commissions in states where the
Company owns no public utility;
(B) FERC rate cases which do not amount to a
"proceeding" as defined in paragraph
19(b)(i);
(C) natural gas storage or pipeline projects or
matters serving or intending to serve only
customers not located in New England, New
York, Pennsylvania, New Jersey, Virginia,
the District of Columbia, Maryland or
Delaware;
(D) marketing of natural gas to be delivered and
consumed more than 50 miles from any
geographic area in which the Company markets
natural gas;
(E) electric generation, marketing or brokering
into any electric transmission grid other
than such grids into which the Company
generates, markets or brokers electricity;
and
(F) production of natural gas or oil, or sale of
such production at the wellhead, more than
50 miles from any geographic area in which
the Company produces natural gas or oil; or
(iv) your engagement in or interest in any business with
the prior written consent of National Fuel Gas
Company.
(d) The parties acknowledge and agree that the foregoing
restrictions contain reasonable limitations as to the time,
geographical area, and scope of activity to be restrained and
these restrictions do not impose any greater restraint than is
necessary to protect the goodwill and other legitimate
business interests of the Company.
18. In consideration for your promises set forth in this Agreement,
National Fuel agrees that:
(a) any inquiries by prospective employers or third parties will be
handled as per Company policy; that is, the dates of your
employment and job title will be the only information released
by the Company;
(b) the contents of this Agreement are confidential; the Company
shall not disclose the contents of this Agreement to anyone
other than the directors, officers, employees and agents of
the Company or its affiliates who need to know except as
required, in the opinion of counsel, to comply with applicable
law, regulation or order;
(c) National Fuel warrants and represents that this Agreement has
been (i) approved by unanimous written consent of the
Compensation Committee, which consent delegates, to the
fullest extent permissible by applicable law, to the
Arbitrator the decisions of whether to cancel your unvested
restricted stock, unexercised stock options and/or unexercised
SARs as a result of action or inaction constituting a breach
of this Agreement by you; and (ii) all obligations imposed by
this Agreement on the Company are duly authorized and legally
binding on National Fuel Gas Company in the same manner as if
National Fuel Gas Company were a party to this Agreement.
(d) National Fuel, on behalf of the Company and with due
authorization from the Company, hereby knowingly and
voluntarily releases and unconditionally waives any and all
demands, claims and causes of action against you, of whatever
kind or nature, which the Company ever had, now has or which it
or its successors can, shall or may have for any reason as of
the date you execute this Agreement, except for claims for
fraud or other intentional misconduct discovered by the
Company's officers after the execution of this Agreement; the
Company does not release or waive any claim which may arise
after the execution of this Agreement; and
(e) the Company shall not publicly or privately disparage you,
either personally or professionally; the parties agree that
nothing in this paragraph shall be construed to prevent any
officer of the Company or any subsidiary or affiliate from
discussing your performance internally in the ordinary course
of business.
19. In further consideration for the promises set forth in this Agreement,
you agree that:
(a) you will not publicly or privately disparage the Company, or
any of its subsidiaries or affiliates, including any aspect of
their respective business, products, employees, management or
Board of Directors, in any manner which could adversely affect
the business of the Company or such subsidiaries or
affiliates; and
(b) you will not, directly or indirectly, take any action with the
purpose of interfering with, damaging or disrupting the assets
or business operations or affairs of the Company or its
subsidiaries or affiliates; without limiting the foregoing in
any way, it shall be conclusively presumed that you have
breached this subparagraph 19(b) if, without the prior written
consent of National Fuel Gas Company or other than at National
Fuel Gas Company's written request, you
(i) voluntarily participate in any rate case, claim,
litigation, arbitration, mediation or administrative
proceeding affecting the revenue, expenses, assets or
liabilities of the Company other than:
(A) an arbitration under this Agreement, or
(B) any claim, litigation, arbitration,
mediation or administrative proceeding that
does not relate to a rate matter, a claim
shared by other ratepayers or customers of
the Company, or a claim you have released
under this Agreement;
(collectively, a "Proceeding");
(ii) voluntarily render any assistance in the preparation
or development of any position in a Proceeding; or
(iii) submit any shareholder proposal, motion or resolution
to the Company to be discussed or voted upon by the
Company's shareholders.
(c) you will not, directly or indirectly and without the prior
written consent of National Fuel Gas Company, work for,
consult with, advise or represent (as employee, agent,
consultant or otherwise), any business which is a "customer"
of the Company, as hereafter defined, with respect to any
matter or activity which would tend to reduce the quantity or
price of services or commodities provided by the Company to
that business;
(d) for purposes of this Agreement, a "customer" of the Company is
any corporation, sole proprietorship, partnership, joint
venture, syndicate, trust or any other form of organization or
parent, subsidiary or division of any of the foregoing, which,
during such period or the immediately preceding fiscal year of
such entity, purchased commodities, goods or services from the
Company; and
(e) you will not induce or otherwise entice, directly or
indirectly, any employee or officer of the Company to leave
the Company, nor shall you attempt to hire any of the
Company's employees or officers.
20. You waive any and all rights to employment at the Company, agree not to
knowingly apply for, solicit, seek or otherwise attempt to obtain
employment with the Company, and further agree that the Company is not
or will not be at any time under any obligation to employ you. You
further agree that if you should apply for employment at the Company,
the Company will have no obligation to process your employment
application or to hire you and that the failure to process your
employment application or to hire you shall not constitute a violation
of any federal, state or local law, regulation or order. Nothing in
this Agreement shall preclude you, however, from soliciting, seeking or
otherwise attempting to obtain consulting work with the Company as an
independent contractor, or from actually performing consulting services
for the Company if retained by the Company, it being understood that
the Company is not and will not be under any obligation to engage you
as a consultant.
21. The parties agree that the Company will make payments due under this
Agreement subject to FICA, any other applicable employment taxes, and
no more than the minimum required withholding for income tax. If the
Company overwithholds income tax from any such payment, the Company
will reimburse you for the time value of such overwithholding, at
simple interest at 6% per annum, running from the date of the
overwithholding until April 15 of the next calendar year. If the
Company fails to withhold the minimum amount of income tax from any
payment to you, and it notifies you of such underwithholding, you will
reimburse the Company the minimum amount which should have been
withheld, no later than the last day of the calendar year in which such
underwithholding occurred.
22. The parties agree that any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be promptly
settled by binding arbitration as described in Exhibit 2 of this
Agreement. Judgment upon the award rendered by the Arbitrator(s) may be
entered in any court having jurisdiction thereof. The parties agree
that they will faithfully observe this Agreement and that they will
abide by and perform any award rendered by the Arbitrator(s).
23. The Company may refuse to process a Notice of Exercise of a stock
option or SAR which you give the Company after the second business day
before the Company issues an Arbitration Notice, pending resolution of
the arbitration. If the Arbitrator finds that you did not materially
breach this Agreement, the Arbitrator's award shall include provisions
intended to place you in the position you would have occupied (not
including consequential damages) if the Company had timely processed
your exercise(s). Except as described in this paragraph 23, the sole
remedies available to the parties to enforce this Agreement are binding
arbitration, and enforcement of the resulting awards and judgments.
24. National Fuel, with due authorization from the Company, agrees that the
Company shall indemnify Mr. Hare if he was or is a party or is
threatened to be made a party to any pending, threatened or completed
civil, criminal, administrative or arbitrative action, suit or
proceeding by reason of the fact that Mr. Hare is or was a director or
officer of the Company, or, while an officer or director of the
Company, is or was serving at the request of the Company as a director,
officer, trustee, employee or agent of another foreign or domestic
corporation, or of any partnership, joint venture, sole proprietorship,
employee benefit plan, trust or other enterprise, whether or not for
profit, to the fullest extent permitted and in the manner provided by
the laws of the State of New Jersey.
25. The parties agree that the legal invalidity of any provision of this
Agreement shall not make this Agreement void or unenforceable, and that
in such case this Agreement shall be construed so as to preserve as
much as possible of the parties' respective interests which motivated
them to execute this Agreement. It is also agreed that this Agreement
shall be construed and enforced in accordance with the laws of the
State of New York. The parties acknowledge that they have mutually
negotiated all provisions of this Agreement with the assistance of
counsel. The provisions of this Agreement shall be interpreted and
construed in accordance with their fair meanings, and not strictly for
or against either party, regardless of which party may have drafted
this Agreement or any specific provisions.
26. This Agreement, the option award document attached as Exhibit 1 and the
arbitration provisions attached as Exhibit 2 constitute the final,
complete and exclusive agreement between National Fuel and you
regarding your employment and its termination. You do not rely upon any
oral promises in signing this Agreement, and the only promises you rely
on are those set forth in writing herein. This Agreement may be
modified or amended only by a written instrument signed by National
Fuel and you.
26. This Agreement is personal to Mr. Hare and without the prior written
consent of National Fuel Gas Company shall not be assignable by him
other than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by Mr.
Hare's legal representatives.
27. This Agreement shall inure to the benefit of and be binding upon
National Fuel and its successors.
IN WITNESS WHEREOF, each party has executed this Agreement as of the
date indicated below.
NATIONAL FUEL GAS SUPPLY CORPORATION
By: /s/ Philip C. Ackerman Date: March 27, 2000
--------------------------
Name: Philip C. Ackerman
------------------------
Title: Executive Vice President
------------------------
RICHARD HARE
/s/ Richard Hare Date: March 29, 2000
- ---------------- --------------
<PAGE>
EXHIBIT 1
---------
<PAGE>
March 17, 2000
Richard Hare
110 Foxmeadow Lane
Orchard Park, NY 14127
Dear Mr. Hare:
I am pleased to inform you that on March 17, 2000 (the "option grant
date") the Compensation Committee ("Committee") of the Board of Directors of
National Fuel Gas Company ("NFG") granted to you (the "Grantee") Non-Qualified
Stock Options ("Options"), under the National Fuel Gas Company 1997 Award and
Option Plan (the "Plan"), to purchase twenty-five thousand (25,000) shares of
Common Stock of NFG, One Dollar ($1.00) par value ("Common Stock") at a purchase
price of $41.5625 per share.
Your new Options are described in the balance of this letter agreement
("Award Notice"). The Plan text and the Committee's Administrative Rules
("Rules") govern the operation of the Plan, as well as the terms and conditions
of your Options granted under the Plan, and are incorporated herein by
reference.
Your Options may be exercised only as follows:
Five thousand (5,000) of your Options may be exercised in whole or in part on or
after April 1, 2005.
Another five thousand (5,000) of your Options may be exercised
in whole or in part on or after April 1, 2006.
Another five thousand (5,000) of your Options may be exercised
in whole or in part on or after April 1, 2007.
Another five thousand (5,000) of your Options may be exercised
in whole or in part on or after April 1, 2008.
The final five thousand (5,000) of your Options may be
exercised in whole or in part on or after April 1, 2009.
<PAGE>
Mr. Richard Hare
Page 2
March 17, 2000
However, upon a Change in Control (as defined in the Plan) your
Options will vest, be valued and cashed out, and the Company will pay
you, all in the same manner as if you were then eligible for
treatment under Section 25 of the Plan. In any event, your Options
will expire at the end of the day on March 31, 2010 and may not be
exercised thereafter. Your Options will be forfeited and expire
sooner if:
you fail or refuse to execute, by April 15, 2000, an agreement which is
also executed by National Fuel Gas Supply Corporation by which you
voluntarily elect to retire as of April 1, 2000 (the "Severance
Agreement"); or
having executed the Severance Agreement, you subsequently exercise a
legal right to revoke the Severance Agreement; or
as a result of your breach of the Severance Agreement, an arbitrator
authorizes the forfeiture of some or all of your Options in accordance
with the arbitration provisions of the Severance Agreement.
Exercise of Options
- -------------------
To exercise your Options, you must deliver to the Secretary or Assistant
Secretary of NFG written notice of exercise specifying the number of shares to
be purchased (a "Notice of Exercise"). Your delivery of the written notice of
exercise creates your binding commitment to pay the full purchase price for the
shares. You may pay the purchase price with cash, with already-owned shares of
Common Stock, with a combination of cash and shares, or pursuant to "cashless
exercise" procedures established by the Committee. Checks should be payable to
NFG. Already-owned shares of Common Stock must be delivered in transferable form
and will be valued at their Fair Market Value (as defined in the Plan) on the
date of exercise. You may be required to represent to NFG in writing, at the
time of each exercise of these Options, that the shares of Common Stock being
purchased are being acquired for investment and not with a view to distribution.
Also, NFG may impose restrictions on your purchase of shares of Common Stock
pursuant to exercise of such Options if the Committee should determine that the
shares must first be listed, registered or qualified, or a governmental consent
obtained. Certificates for shares purchased will be delivered to you as soon as
practicable after you exercise your Options.
<PAGE>
Mr. Richard Hare
Page 3
March 17, 2000
NFG may, in its sole discretion, refuse to process a Notice of Exercise
of an Option which you give NFG after the second business day before National
Fuel Gas Supply Corporation issues an Arbitration Notice under the Severance
Agreement, pending resolution of the arbitration.
Authority of Committee
- ----------------------
The Committee has the authority, in its sole discretion, to interpret
the Plan and all Options granted thereunder, to establish rules and regulations
relating to the Plan and to make all other determinations it believes necessary
or advisable for the administration of the Plan. The scope of the Committee's
authority is more fully described in the Plan. All determinations and actions of
the Committee are final, conclusive and binding on you, subject to the terms and
provisions of the Severance Agreement.
Miscellaneous
- -------------
Any capitalized term used but not defined in this Award Notice shall have the
same meaning as it is defined in the Plan or in the Committee's rules and
regulations as in effect as of the date hereof.
You have no right to assign or transfer your Options, except by will,
by the laws of descent and distribution, or as otherwise permitted in the Plan.
Nothing in this Award Notice or in the Plan gives you any right to
continue in the employment of the Company.
This Award Notice shall be binding on and inure to the benefit of the
Company (and its successors and assigns) and you (and your heirs, legal
representatives and estate). This Award Notice shall be governed, construed and
enforced in accordance with the Plan and with the laws of the State of New York.
This Award Notice together with the pertinent provisions of the
Severance Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof. With respect to unexercised Options, this
Award Notice may be unilaterally amended or modified by the Committee, as
permitted by the Plan or the Rules, to the extent it deems appropriate, but may
not be amended or modified without your consent if such amendment or
modification is adverse to you. Except as otherwise provided in the preceding
sentence, this Award Notice may not be modified, amended, renewed or terminated,
nor may any term or condition, or breach of any term or condition, be waived,
except in writing signed by the person or persons sought to be
<PAGE>
Mr. Richard Hare
Page 4
March 17, 2000
bound by such modification, amendment, renewal, termination or waiver. Any
waiver of any term or condition or breach thereof shall not be a waiver of any
other term or condition, or of the same term or condition for the future, or of
any subsequent breach.
At the time of the exercise of your Options, the Company is entitled to
deduct from the shares of Common Stock being acquired upon the exercise of your
Options, or require you to pay to it prior to and as a condition of issuing
shares of Common Stock, the amount of all applicable income and employment taxes
required by law to be withheld with respect to such exercise. Alternatively, you
may pay such taxes respecting Option exercises by delivering to the Company
shares of Common Stock having a Fair Market Value equal to the amount of such
taxes.
Please be aware that it may be inappropriate to exercise your Options
at certain times, as a result of the federal securities laws.
In the event of the invalidity of any part or provision of this
agreement, such invalidity shall not affect the enforceability of any other part
or provision hereof.
Acceptance
- ----------
If the foregoing is acceptable to you, kindly acknowledge your
acceptance by signing both copies of this letter and returning one to Anna Marie
Cellino.
Very truly yours,
NATIONAL FUEL GAS COMPANY
By:_____________________________
B. J. Kennedy
Chief Executive Officer and
Chairman of the Board
AGREED TO AND ACCEPTED
this ____ day of March, 2000.
- ---------------------------
Grantee
<PAGE>
EXHIBIT 2
---------
<PAGE>
ARBITRATION
-----------
1. The parties agree that either party may demand that a dispute under this
Agreement shall be resolved by binding arbitration. The parties intend that this
right to binding arbitration be enforceable in accordance with applicable law,
including Article 75 of the New York Civil Practice Law and Rules.
2. The parties intend that the Arbitrator shall be Mr. John M. Brown, formerly
Vice Chairman of the Company, unless either party objects to his serving in that
capacity as provided in paragraph 5 below. This Exhibit 2 sets out the procedure
for arbitration if Mr. Brown is unable or unwilling to serve or if either party
duly objects to his serving as Arbitrator. Applicable law grants some rights to
seek to have an Arbitrator appointed or removed.
3. Any party wishing to begin arbitration regarding this Agreement shall notify
the other party of its intention to arbitrate in a writing (the "Arbitration
Notice") which briefly describes the issue(s).
4. An Arbitration Notice, and any other notice under this Agreement, shall be
deemed given when it is delivered in person, or when it is sent by prepaid
Federal Express or certified mail addressed as follows, or to another address
specified by the receiving party:
Richard Hare National Fuel Gas Company
110 Foxmeadow Lane President
Orchard Park, NY 14127 10 Lafayette Square
Buffalo, NY 14203
copy to:
Samuel J. Palisano
Jaeckle Fleischmann & Mugel
Fleet Bank Building
12 Fountain Plaza
Buffalo NY 14202
The date on which an Arbitration Notice is deemed given is referred to as the
"Notice Date").
5. Within twenty (20) days after the Notice Date, either party may object to Mr.
Brown serving as Arbitrator by giving written notice to the other party. If no
such objection is filed during such period, the party initiating arbitration
shall promptly send written notice to Mr. Brown requesting:
(a) Mr. Brown to serve as Arbitrator in accordance with the terms
set out in this Agreement, which shall be attached, and
(b) that Mr. Brown notify the parties of his willingness to serve
as Arbitrator.
6. If Mr. Brown agrees in writing to serve on the terms set out in this Exhibit
2, then he shall be the Arbitrator on the following terms:
(a) The Arbitrator shall be paid a fee of one hundred fifty
dollars per hour ($150/hr) plus reasonable expenses; each
party shall pay one-half (1/2) of the fees and costs of the
Arbitrator promptly upon receipt of invoices for same.
(b) The Arbitrator shall perform the Arbitrator's duties in
accordance with this Agreement, impartially and in good faith,
with the objective of securing a just and inexpensive
determination of the dispute without unnecessary delay.
(c) To the maximum extent permitted by applicable law, the
Arbitrator shall be immune from liability or suit with respect
to his conduct as such.
(d) The Arbitrator shall maintain in confidence the existence of
the arbitration, its outcome, and all related information
which is not already publicly known, and shall vigorously
enforce the confidentiality obligations of the parties.
7. If Mr. Brown serves as Arbitrator, the following rules shall apply:
(a) A Party may move for permission to serve written
interrogatories and requests for production of documents and
electronic media upon the opposing party. The Arbitrator shall
grant such motions to the extent that such interrogatories and
requests are designed to produce relevant evidence and only
upon such terms as the Arbitrator in his discretion considers
to be consistent with the objective of securing a just and
inexpensive determination of the dispute without unnecessary
delay.
(b) Upon motion by a party, the Arbitrator may order a deposition
upon a showing of good cause and a finding that the deposition
is designed to secure relevant and probative evidence which
(i) cannot be obtained by alternative means, or (ii) may
otherwise not be preserved for presentation at hearing.
(c) If a party fails to comply with an order issued under (a) or
(b) above, the Arbitrator shall draw inferences adverse to
that party in connection with the facts sought to be
discovered.
(d) The Arbitrator shall schedule hearing(s) in Buffalo, New York,
at which the parties may be heard, present evidence material
to the controversy, and cross-examine the other party and
other witnesses appearing at the hearing. At least five (5)
days prior to the hearing, each party shall make available to
each other party the names of the expert and other witnesses
it intends to call, together with a detailed summary of their
expected testimony, and copies of all documents and exhibits
which the party intends to introduce into evidence.
Thereafter, witnesses, documents or exhibits may be added and
narrative summaries of expected testimony amended only upon
motion by a party for good cause shown.
(e) Except for good cause shown, no request for postponement of a
hearing will be granted; in case of a postponement, the
hearing shall be rescheduled for a date as early as
circumstances permit.
(f) The Arbitrator shall make such orders as required to protect
the secrecy of confidential information or documents, such as
review in camera. The Arbitrator shall impose a sanction
against any party who violates an order issued under this
section. Such sanction may include an award against the
offending party.
(g) No party shall make or cause to be made to the Arbitrator an
unauthorized ex parte communication relevant to the merits of
the proceeding. The Arbitrator shall promptly disclose to the
other party any such communication and provide a meaningful
opportunity for rebuttal.
(h) The Arbitrator must make the award(s) within thirty (30) days
after the conclusion of hearing(s), or the date of the filing
of any briefs authorized by the Arbitrator, whichever date is
later, unless the parties and the Arbitrator agree to some
other time limit. The award(s) must be in writing and include
findings of fact and conclusions of law regarding the issues
in dispute.
8. If, within ten (10) days after the date on which notice is given to Mr. Brown
by the party initiating arbitration, Mr. Brown has failed or refused to notify
the parties that he will serve as Arbitrator, or if either party objects to Mr.
Brown serving as Arbitrator in accordance with paragraph 5 above, the dispute
shall be resolved by binding arbitration administered by the American
Arbitration Association under its National Rules for the Resolution of
Employment Disputes then in effect at the time of the arbitration (the "Rules"),
subject to the provisions of paragraph 9 below. The parties agree that such
arbitration shall be heard and determined by a single arbitrator appointed by
the parties in accordance with the Rules, that the location of any hearing shall
be in Buffalo, New York, and that the compensation of the Arbitrator and all
expenses of arbitration (other than expenses of witnesses for each party) shall
be borne equally by the parties.
9. The following provisions shall govern exclusively the remedies or relief that
may be included in an Arbitrator's award, whether the arbitration is conducted
by Mr. Brown in accordance with paragraphs 6 and 7 above or by an arbitrator
appointed under the Rules in accordance with paragraph 8 above, and shall
supersede any provision to the contrary in this Agreement or the Rules:
(a) If the Arbitrator imposes a sanction upon the Company, or
finds that the Company has breached this Agreement, the
Arbitrator's award may be in the form of a requirement that
the Company
(i) pay money damages to Mr. Hare,
(ii) take or refrain from some specified action, and/or
(iii) issue or publish specified communications.
(b) If the Arbitrator imposes a sanction upon Mr. Hare, or finds
that Mr. Hare has materially breached this Agreement, the
Arbitrator's award may be in the form of
(i) authorization of the Company to cancel Mr. Hare's
unvested restricted stock, unexercised stock options
and/or unexercised SARs,
(ii) approval of the Company's refusal to process a Notice
of Exercise of a stock option or SAR which was
received by the Company after the Company issued an
Arbitration Notice;
(iii) authorization of the Company to setoff money damages
awarded by the Arbitrator against future payments due
to Mr. Hare under this Agreement, to the extent
permitted by applicable law;
(iv) a requirement that Mr. Hare take or refrain from
taking some specified action, and/or
(vi) a requirement that Mr. Hare issue or publish
specified communications.
The parties agree that in no event may any award of money
damages against Mr. Hare pursuant to this Agreement exceed any
future payments due to Mr. Hare under this Agreement.
10. A final award is binding on the parties and may be enforced under applicable
law including Article 75 of the New York Civil Practice Law and Rules. No award
under this Agreement may serve as an estoppel in any other proceeding for any
issue that was not resolved in the proceeding. The award also may not be used as
a precedent or otherwise be considered in any factually unrelated proceeding or
in any other arbitration proceeding.
EXHIBIT 12
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
UNAUDITED
For the Twelve Fiscal Year Ended September 30
--------------------------------------------------------
Months Ended
March 31, 2000 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Income Before Interest Charges and Minority Interest
in Foreign Subsidiaries (2) $222,474 $202,512 $118,085 $169,783 $159,599 $128,061
Allowance for Borrowed Funds Used in Construction 358 303 110 346 205 195
Federal Income Tax 62,754 44,583 43,626 57,807 55,148 30,522
State Income Tax 6,625 6,215 6,635 7,067 7,266 4,905
Deferred Inc. Taxes - Net (3) 5,386 14,030 (26,237) 3,800 3,907 8,452
Investment Tax Credit - Net (922) (729) (663) (665) (665) (672)
Rentals (1) 4,120 4,281 4,672 5,328 5,640 5,422
------------------------------------------------------------------------------
$300,795 $271,195 $146,228 $243,466 $231,100 $176,885
==============================================================================
FIXED CHARGES:
Interest & Amortization of Premium and
Discount of Funded Debt $64,847 $65,402 $53,154 $42,131 $40,872 $40,896
Interest on Commercial Paper and
Short-Term Notes Payable 18,932 17,319 13,605 8,808 7,872 6,745
Other Interest (2) 5,456 2,835 16,919 4,502 6,389 4,721
Rentals (1) 4,120 4,281 4,672 5,328 5,640 5,422
------------------------------------------------------------------------------
$93,355 $89,837 $88,350 $60,769 $60,773 $57,784
==============================================================================
RATIO OF EARNINGS TO FIXED CHARGES 3.22 3.02 1.66 4.01 3.80 3.06
</TABLE>
Notes:
(1) Rentals shown above represent the portion of all rentals (other than
delay rentals) deemed representative of the interest factor.
(2) The twelve months ended March 31, 2000 and fiscal 1999, 1998, 1997, 1996
and 1995 reflect the reclassification of $1,927, $1,839, $1,716, $1,716,
$1716 and $1,716 representing the loss on reacquired debt amortized
during each period, from Other Interest Charges to Operation Expense.
(3) Deferred Income Taxes - Net for fiscal 1998 excludes the cumulative
effect of change in accounting.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONAL FUEL
GAS COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,377,824
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 334,150
<TOTAL-DEFERRED-CHARGES> 13,523
<OTHER-ASSETS> 222,054
<TOTAL-ASSETS> 2,947,551
<COMMON> 39,111
<CAPITAL-SURPLUS-PAID-IN> 444,029
<RETAINED-EARNINGS> 552,198
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,015,684
0
0
<LONG-TERM-DEBT-NET> 960,734
<SHORT-TERM-NOTES> 74,029
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 199,200
<LONG-TERM-DEBT-CURRENT-PORT> 12,549
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 685,355
<TOT-CAPITALIZATION-AND-LIAB> 2,947,551
<GROSS-OPERATING-REVENUE> 894,798
<INCOME-TAX-EXPENSE> 62,516
<OTHER-OPERATING-EXPENSES> 670,971
<TOTAL-OPERATING-EXPENSES> 733,487
<OPERATING-INCOME-LOSS> 161,311
<OTHER-INCOME-NET> 5,365
<INCOME-BEFORE-INTEREST-EXPEN> 166,676
<TOTAL-INTEREST-EXPENSE> 48,081
<NET-INCOME> 115,919
0
<EARNINGS-AVAILABLE-FOR-COMM> 115,919
<COMMON-STOCK-DIVIDENDS> 36,238
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 184,970
<EPS-BASIC> 2.97
<EPS-DILUTED> 2.94
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONAL FUEL
GAS COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,268,547
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 341,330
<TOTAL-DEFERRED-CHARGES> 8,957
<OTHER-ASSETS> 229,529
<TOTAL-ASSETS> 2,848,363
<COMMON> 38,641
<CAPITAL-SURPLUS-PAID-IN> 424,240
<RETAINED-EARNINGS> 492,233
<TOTAL-COMMON-STOCKHOLDERS-EQ> 943,334
0
0
<LONG-TERM-DEBT-NET> 724,920
<SHORT-TERM-NOTES> 212,100
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 150,000
<LONG-TERM-DEBT-CURRENT-PORT> 160,111
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 657,898
<TOT-CAPITALIZATION-AND-LIAB> 2,848,363
<GROSS-OPERATING-REVENUE> 823,826
<INCOME-TAX-EXPENSE> 52,580
<OTHER-OPERATING-EXPENSES> 630,937
<TOTAL-OPERATING-EXPENSES> 683,517
<OPERATING-INCOME-LOSS> 140,309
<OTHER-INCOME-NET> 6,317
<INCOME-BEFORE-INTEREST-EXPEN> 146,626
<TOTAL-INTEREST-EXPENSE> 44,975
<NET-INCOME> 98,763
0
<EARNINGS-AVAILABLE-FOR-COMM> 98,763
<COMMON-STOCK-DIVIDENDS> 34,642
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 132,367
<EPS-BASIC> 2.56
<EPS-DILUTED> 2.54
</TABLE>
Exhibit 99
Form 10-Q
March 31, 2000
NATIONAL FUEL GAS
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Twelve Months Ended
March 31,
--------------------
2000 1999
(Thousands of Dollars, Except Per
Common Share Amounts)
INCOME
Operating Revenues $1,334,345 $1,238,157
---------- ----------
Operating Expenses
Purchased Gas 440,130 401,429
Fuel Used in Heat and Electric Generation 54,674 57,108
Operation 309,466 288,352
Maintenance 23,625 24,532
Property, Franchise and Other Taxes 84,860 90,614
Depreciation, Depletion and Amortization 133,717 124,537
Income Taxes - Net 74,765 63,396
---------- ----------
1,121,237 1,049,968
---------- ----------
Operating Income 213,108 188,189
Other Income 11,293 15,425
---------- ----------
Income Before Interest Charges and
Minority Interest in Foreign Subsidiary 224,401 203,614
---------- ----------
Interest Charges
Interest on Long-Term Debt 64,847 63,723
Other Interest 25,958 22,822
---------- ----------
90,805 86,545
---------- ----------
Minority Interest in Foreign Subsidiary (1,404) (2,273)
---------- ----------
Net Income Available for Common Stock $ 132,192 $ 114,796
========== ==========
Basic Earnings (Loss) Per Common Share
Net Income Available for Common Stock $ 3.40 $ 2.98
========== ==========
Diluted Earnings (Loss) Per Common Share
Net Income Available for Common Stock $ 3.37 $ 2.96
========== ==========
Weighted Average Common Shares Outstanding
Used in Basic Calculation 38,879,284 38,484,952
========== ==========
Used in Diluted Calculation 39,267,569 38,822,817
========== ==========
